Category Archives: Reputation

Stories about trends in the U.S. and global economies. The hottest new IPO. A cool product or service intended to change the world. A big earnings gain or miss. Reports about various countries’ fortunes both politically and fiscally all across the world. CEO changes, restructurings and recessions, just to name a few.

Absolute Value is our sounding post where we hope to exchange ideas and commentary on why all of this matters. We believe our point-of-view about events and communications helps our clients matter more in an era of unprecedented global connection.
 

SEC Staff Releases Guidance on Proxy Advisory Firms – Long Wait with Little Impact
July 29, 2014

On June 30th, the U.S. Securities and Exchange Commission (SEC) released a staff legal bulletin, regarding proxy voting and the use of proxy advisory firms by institutional investors and registered investment advisers.  Specifically, in an attempt to enhance transparency, minimize potential conflicts of interest and avoid a widespread overreliance on proxy firms by institutional investors, the bulletin provided guidance about investment advisers’ responsibilities in voting client proxies and retaining proxy advisory firms.

magnifying glassProfessional organizations like NIRI have long urged the SEC to more closely regulate proxy advisors and their reports, which have often been criticized for perceived inaccuracies, being unclear and often offering “one-size-fits-all” voting guidelines, although this staff bulletin offers investment managers limited guidance and nothing more.  NIRI also believes that the “widespread use of proxy advisory services by institutional investors has resulted in these firms having a significant impact on shareholder voting. However, proxy advisory firms remain largely unregulated, and are not fully transparent about their methodologies and decision-making processes.”

So, what does the recent SEC guidance really mean for public companies in the proxy process? As you prepare for a significant shareholder vote the key as always is maintaining good relationships with your active shareholders. For proxy voting, our research has shown that the majority of buy-side institutions can have an impact on final voting responsibility. The legal and/or proxy department is also involved, but make no mistake–your primary contacts will have a say and their words will have weight. The onus remains on the Company’s IR team to keep the lines of communications open so at voting time, no one gets a nasty surprise!

Joe Calabrese and Scott Eckstein bring a wealth of experience to MWW’s Financial Communications practice.

Joe Calabrese is a Senior Vice President with approximately 20 years of investor relations experience. Working closely with publicly-traded and private companies, Joe provides strategic counsel, message and collateral materials development and has in-depth experience assisting IPOs, M&A transactions, restructurings, restatements, analyst days and management changes.

Scott Eckstein is a Director of Account Services at Financial Relations Board and brings over 15 years of experience in financial communications both in agency and corporate roles. Scott has worked with a number of companies developing integrated communications programs as well as developing targeted institutional and retail branding campaigns. He has also provided advisory services for a variety of small- to large-cap companies.

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Can a CEO Opt-out of Earnings Calls?
October 21, 2013

In case you missed it, last week Google’s CEO announced that he may not be joining future earnings calls. Some news reports are citing vocal chord troubles, while Page himself suggested it was a need for him to “ruthlessly prioritize.” But how can Larry Page be a CEO if he can’t talk? Do they do all of their strategy meetings via Google Hangout? And if it is a question of priorities, shouldn’t his shareholders be a priority four times a year?

Many are citing the precedent of Steve Jobs opting out while battling cancer, which was obviously an extreme example. Others may recall Jeff Bezos who was very clear that he wasn’t going to concern himself with Wall Street’s short term priorities. But that didn’t mean he didn’t show up.

What are the implications of a CEO stepping back from investor relations commitments like a 4-times-per-year call? I’ve had many a client over two decades that would prefer to decline the quarterly firing squad known as the analyst call. And I’ve had a few that probably would have been doing their Company, and their shareholders, a service by playing hooky on those days.

We know that at least one-third of a Company’s valuation is tied to intangibles. When pressed to get specific about what those things are, quality of management, leadership and vision are the most frequently cited variables. Perhaps Google feels that the CEO-investor version of playing hard to get will increase his perceived value?

Woody Allen said it best, “Eighty percent of success is just showing up.” My view: if you want to be the CEO, you have to show up.

Carreen Winters brings nearly two decades of corporate communications expertise to her position at MWW Group with special emphasis in corporate and executive positioning, reputation management, crisis communications, restructuring and financial transactions, employee communications and labor relations.

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Rating S&P’s Words
April 24, 2013

As practitioners of crisis communications, we regularly work closely with legal counsel to make sure that the communications strategy is closely aligned with the legal strategy. Our objective is to help protect brands and while the lawyers look toward winning in the court of law, we public relations practitioners aim for success in the court of public opinion. Words matter for each of us in arguing our case and we seek to be in sync in legal filings and corporate messaging. Yet, there are some times when friction can emerge between the road the lawyers are taking and what we believe may be best for our client’s reputation.

That rub is now being played out in fabulous fashion in a civil fraud lawsuit filed by the United States Department of Justice against Standard & Poors Ratings Service regarding S&P’s ratings and the 2008 financial meltdown. As The Wall Street Journalreporter Jeannette Newman points out in her excellent April 23 story on the case, S&P has long focused on the words “independent” and “objective” in selling itself as the grand arbiter of the quality and safety of corporate debt and a host of financial instruments. “Independent” and “objective” went hand in hand with “Standard” and “Poors” in how the Company described itself to investors and sold its expertise for very big bucks to its clients. The words are ubiquitous in the materials produced by S&P’s marketing and public relations teams and frequently repeated by company executives.

But facing the DOJ in court, S&P’s lawyers are now saying those words are just “puffery” and were never meant to be taken at face value. The company’s legal team, which includes First Amendment super-lawyer Floyd Abrams, cites recent Federal court rulings that call into question whether S&P’s watch words can really be depended on. Or as Ms. Newman recounts, the lawyers’ point is that “S&P’s ratings were objective, independent and uninfluenced by conflicts of interest. That, however, is beside the point.”

Whether this legal strategy will win in the court of law is yet to be seen but it looks like a very shaky argument in the court of public opinion. Ms. Newman’s quote in the story from Duke Law professor Samuel Buell sums up the issue quite well. He states that “Even if it’s a viable legal argument, it’s a pretty unattractive argument for S&P to be putting forward since they’re basically in the business of charging clients for their reputation. What they’re saying here is, ‘When we’re talking to investors about our own reputation, we’re engaging in meaningless puffery.’”

Now I do not know how and if S&P’s communicators were involved in litigation support, but this is a pretty big hole for the company to dig itself out of reputation-wise, especially when it is the subject of a front page WSJ article. Lawyers have their job to do and public relations professionals have their job to do. In the realm of litigation support, we must not be shy to argue our case to executives/boards and make sure they know all the potential ramifications of the legal strategy and words counsel are using. What may win the day in court could lose in the court of public opinion and impact business and the bottom line. That is why, particularly in the digital age when legal documents are more accessible than ever, it is important to review court filings from a brand and reputation perspective and provide communications counsel to executives/boards. At the end of the day, it is up to them to decide which way to go when lawyer words and brand messages conflict but a seat at the table when those decisions are made is crucial. Time will tell if S&P made the right decision.

Rich Tauberman is Executive Vice President of MWW and a leader of the firm’s Corporate and Financial Communications practices. He directs some of MWW’s top professional services and financial services accounts. Rich’s background includes managing communications activities for law firms, accounting firms, banks, brokerages, asset managers, insurance companies and healthcare organizations. He possesses an expertise in crisis/issues management, litigation support and investor relations.

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“Stupidest” and “Most Embarrassing” – Phrases You Wouldn’t Expect to See in an Annual Letter
April 10, 2013

That is until JP Morgan published Jamie Dimon’s annual letter to shareholders today. It’s a good read, all 29 pages of it, but what immediately caught my attention was Dimon’s blistering quote, “The London Whale was the stupidest and most embarrassing situation I have ever been a part of.” He followed that up with, “We had a gap in our fortress wall. For a company that prides itself on risk management, this was a real kick in the teeth.”

Dimon’s reputation, as well as the bank’s, has certainly taken numerous hits since news of the London Whale incident first broke. But the stock has made a roaring comeback since its bottom last summer. Of course, operating results have a little something to do with that run, but you have to give Dimon credit where credit is due in the repair of both his and the company’s reputation, which has certainly contributed to the stock’s performance as well.

This refreshingly frank annual letter commentary is quintessential Jamie Dimon. We applaud him and his IR team for owning up to the gravity of the issues they have faced, to mend the relationship with their shareholders and rebuild JP Morgan’s credibility.

Stacy Feit is a Senior Vice President at Financial Relations Board with over 10 years of investor relations and Wall Street experience. She provides strategic financial communications counsel and helps clients increase their visibility within the financial community. She has guided numerous clients through major milestones, including IPOs, spin-offs, acquisitions and restructurings.

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The Fiscal Cliff – Some Companies are Softening the Blow for Dividend Investors
December 5, 2012

It’s difficult to look at any news outlet today and not hear coverage on the impending “Fiscal Cliff” that looms over our nation. The implications of ending the Bush era tax cuts and potential tax increases and spending cuts are numerous, but specifically for one class of investors it raises a pointed question – what are the implications for dividend investors?

The simple answer is of course already on paper. Shareholders pay taxes on their dividend income according to their respective tax brackets. At present, taxpayers in the 10- or 15-percent tax brackets pay no taxes on their dividend income. For all other taxpayers, the tax rate on dividend income is capped at 15 percent. These rates are set to expire on December 31.

Bottom line – if nothing is done to avert this deadline then the maximum tax rate on dividend income will rise to 43.4 percent in just under a month. For individuals, the maximum individual tax rate will be 39.6 percent, with additional Medicare tax added on for households earning more than $250,000 or $200,000 if you’re single. It does not end there. For those lower income taxpayers in the 15 percent income tax bracket, who now pay zero taxes on dividend income, will pay 15 percent; and those in the 28 percent tax bracket – individuals making over $35,500 in 2013 – will see their dividend income tax almost double from 15 percent to 28 percent.

Companies’ responses to this potential issue have varied. In some cases, companies have tried to take action now to minimize near-term impact to their shareholders. As discussed in a recent Wall Street Journal article, several companies such as Oracle, Costco and Wal-Mart have accelerated dividend payments to allow investors to take advantage of existing lower tax rates. Others such as Las Vegas Sands have announced special dividends that will be paid before year-end to try and offset the potential impact.

While these acts have received praise from many investors, they also bring their own host of questions and its best companies are prepared to answer them beforehand. As some media outlets are highlighting, the big question is “if companies that have declared special dividends or accelerated dividend payments could have used the cash to fund growth opportunities instead?” Also, are “insiders the ones that will benefit the most from special dividends or a shift in regular dividend payments?”

The ultimate fate of the U.S. government’s fiscal plans is still unclear as bipartisan politics continues to fuel the uncertainty. From a financial communications standpoint, it requires at least a temporary reshaping of communications for affected companies to help their investors understand the potential impact. For the longer-term, this has the potential to significantly alter the investment thesis of companies that rely heavily on dividend / retail investors. If enacted, these companies will have to take a hard look at their core messaging strategies and possibly revisit them to ensure they remain attractive to dividend investors in the face of this new paradigm.

Scott Eckstein is a Director of Account Services at Financial Relations Board and brings over 15 years of experience in financial communications both in agency and corporate roles. Scott has worked with a number of companies developing integrated communications programs as well as developing targeted institutional and retail branding campaigns. He has also provided advisory services for a variety of small- to large-cap companies.

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Markets Are Closed but the Beat Still Goes On For Many Including Our Favorite Fruit
October 31, 2012

U.S. markets were closed again today as Hurricane Sandy continued to wreak havoc on the Eastern Seaboard. This is the first time inclement weather has closed markets for consecutive days since 1888 when a blizzard shut the NYSE for two days. With third quarter earnings season in full swing, many management teams and IR departments have been debating whether to postpone earnings announcements and conference calls or move forward anyway despite the frozen markets. While over 50 opted to postpone, a number of companies, including big names like Burger King Worldwide and Valero Energy, moved forward as planned, neither of which was to mask weak results. In the meantime, our friends in Cupertino chose to announce a major management shakeup yesterday. As one of the most actively traded stocks, making an announcement of this magnitude during this virtually unprecedented market closure smells of a classic attempt to bury the news. We’ll have to wait until tomorrow to see if the strategy pays off…just about everyone’s eyes will be on Apple at the open.

Stacy Feit is a Senior Vice President at Financial Relations Board with over 10 years of investor relations and Wall Street experience. She provides strategic financial communications counsel and helps clients increase their visibility within the financial community. She has guided numerous clients through major milestones, including IPOs, spin-offs, acquisitions and restructurings.

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ECB Unveils New Government Bond-Buying Program – Sparks Capital Markets Rally
September 6, 2012

Today, the European Central Bank (ECB) announced an open-ended sovereign bond purchasing program to keep borrowing costs down for Spain, Italy and other struggling countries. This comes nearly three years after Europe started experiencing a credit crisis that many feared would signal the end of the euro zone. Many are saying that this program has the potential to be a real game changer as reported in today’s Wall Street Journal.

The mechanics of the new program, called Outright Monetary Transactions, are as follows: the ECB will buy unlimited, existing government bonds in the secondary market only, so long as the euro zone government complies with an economic reform program approved by the euro zone. The ECB, in turn, will offset those purchases by taking an equal amount of money out of circulation in a process known as sterilization, keeping its mandate to maintain stable prices.

Although many of the details of today’s announcement were widely anticipated, the news has also sparked a substantial trading rally in U.S. markets, with the Dow Jones Industrial Average up to 13,277.22, +229.74 or 1.76% as of 1:45 p.m. ET in today’s trading. The S&P 500 was up to 1,430.82, an increase of +27.39 or 1.95%.

What does this mean for U.S. investors? Only time will really tell. In the past year alone, we have seen many dips and dives around any news concerning the economic climate in Europe. However, from our team’s perspective, it’s clear that we are living in a truly interconnected world. Most agree that earnings in the U.S. are slumping in no small part due to global economic weakness. Whether or not today’s news will have a material impact on the near-term performance of U.S. companies, it’s clear from today’s market performance that U.S. investors have taken this opportunity to move off the sidelines. Whether short-lived or not, it’s clear that all financial communications should at least take into account what’s happening on a global stage. For many companies, it also begs the question whether or not their investor communications strategies are prepared to do this.

Scott Eckstein is a Director of Account Services at Financial Relations Board and brings over 15 years of experience in financial communications both in agency and corporate roles. Scott has worked with a number of companies developing integrated communications programs as well as developing targeted institutional and retail branding campaigns. He has also provided advisory services for a variety of small- to large-cap companies.

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Beyond the Presidency: Will CEOs Be “Campaigning” for their Jobs?
August 30, 2012

Last night at the Republican National Convention, New Jersey Gov. Chris Christie proclaimed that leadership is not about reacting to poll results, but creating those poll results. I suppose I’ve found one thing that I can agree with Chris Christie about: the importance of presidential leadership. (Though, Michael Douglas also said this while playing a President in one of my all time favorite movies, The American President. Which is neither here nor there.)

But not reacting to polls is easier said than done when a mere four years later, regardless of your party affiliation, you have to run for reelection.

Could this also apply to CEOs? As shareholder activism and influence continues to grow, public company CEOs may find themselves in a similar situation, and not just every four years, but annually. CEOs have always worked for the shareholders, but judgment of their performance was largely governed by the Board of Directors.

With the emergence of Say on Pay, and other shareholder assertiveness, however, a new dynamic is developing. Take, for example, WellPoint’s announcement that the CEO is stepping down largely due to shareholder demands, with no one waiting in the wings to take her place. A CEO’s abrupt departure, without a new CEO already in place to assume control, used to be reserved for situations of malfeasance, misconduct, or personal situations, like illness. Certainly, a smooth and planned transition of power to a new leader is preferable in most situations. But we’re seeing it happen more and more under pressure of investors. While investor pressure has always played a role in leadership changes, rarely have we seen it played out so publicly and transparently.

Does this signal a new era of corporate governance and proxy fights, where CEOs will need to “campaign” for their compensation? Go on investor listening tours, working to shore up support to keep their jobs? Will annual meetings look more like political conventions, with grandstanding surrogates and investors as delegates? Or will an eventual, positive change in the economy let some of the air out of the activist shareholder sails? Would love to hear your thoughts…

Carreen Winters brings nearly two decades of corporate communications expertise to her position at MWW Group with special emphasis in corporate and executive positioning, reputation management, crisis communications, restructuring and financial transactions, employee communications and labor relations.

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Proxy Season Ends with a Dramatic Shift in Shareholder Engagement
August 7, 2012

Proxy season came in like a lion. Remember the media blitz back in April, when investors strongly voted down Citigroup’s proposed $15 million pay package for its Chairman? Following closely behind, across the pond, there were other shareholder revolts at Cairn, Barclays and Prudential over compensation. Indeed, it was a global outcry.

What I find even more interesting and promising, while falling under the radar for the most part, was the fact that several prominent companies, including Umpqua Holdings, Stanley Black & Decker, Beazer Homes and Jacobs Engineering–who were poster children in the 2011 proxy season for their “out-of-touch” executive pay–turned the tables and garnered more than 90% shareholder approval for new pay packages in the 2012 proxy season. Clearly they understood what needed to be done and took actions to work with investors post their 2011 shareholder meetings to make sure their pay plans were acceptable.

Proxy season is now over for the most part and according to a report by Ernst & Young (E&Y) the 2012 season represented a dramatic shift in shareholder engagement.

The report highlights four emerging corporate governance trends, each of which points to engagement having been a significant component of these trends. Companies are using shareholder engagement to respond to investor concerns, secure support for proposals put to shareholder vote and mitigate exposure to investor campaigns.

At the time of the report, voting revealed four developments:

  1. The impact on say-on-pay (SOP) goes beyond compensation. Proxy statements filed by S&P 500 companies that received less than 70% approval on their 2011 SOP proposals show nearly all made changes in their shareholder outreach.
  2. Shareholder proposal topics are shifting and agreements for withdrawal are being reached. Board-focused and environmental social proposals each represent 35% of the total proposals. At least 15% of the more than 800 shareholders’ reports tracked by E&Y were withdrawn following dialogue between companies and shareholders, with both sides reaching agreement on how to best achieve governance and responsibility goals.
  3. Board accountability measures continue to strengthen. Companies have increasingly acted to implement annual board elections, adopt majority vote standards for director elections and appoint independent board leaders in response to long-standing investor support for shareholder proposals on these topics. Investors continue to press for these reforms.
  4. Director opposition votes show changes in voting practices. While 2012 has seen an increase in attention to “vote no” campaigns, overall director opposition votes remain low and, as a result of SOP proposals, compensation is no longer a primary driver of opposition votes.

With one proxy season over, another begins and compensation committees are already starting the 2013 process. We believe that headway is being made between corporations and investors in actively engaging one another. As said before, and it bears repeating, it is never too early or too late to begin a dialogue or further strengthen this engagement. Or, as one compensation committee chair said, “It is important for committees (and boards in general) to remember that they represent and serve the interests of shareholders.” We agree.

Marilynn Meek is a Vice President at Financial Relations Board and brings over two decades of experience as an officer of Wall Street securities firms and IR agencies. She provides strategic communications programs that include IPOs, M&As, capital raising initiatives, shareholder and analyst communications, and financial crisis communications for micro-cap to Fortune 500 companies.

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Executive Compensation Plans Continue To Be Shot Down
June 11, 2012

The failure of Citi to have its executive compensation plan approved for the first time in 200 years garnered tremendous media coverage at the beginning of this year’s proxy season. At that time, we questioned how many other executive comp plans might meet the same fate. Well, the tally at June 4 was 39 companies, including two companies that once again failed to have their plans approved in 2011 – Hercules Offshore, where a lawsuit was subsequently filed, and Kilroy Realty. Could they have been betting on “it can’t happen again?” In contrast to this, 16 companies (as of May 15) whose plans were shot down in 2011 were rewarded with a yes vote for their improved 2012 executive comp plans. They clearly got the message, with approximately two-thirds of these companies placing a greater emphasis on pay for performance, undertaking significant shareholder outreach and eliminating problematic practices as defined by their proxy advisors.

It appears that investors are becoming more comfortable in voicing their say on pay and it is likely that the number of failures in 2012 will surpass 2011, where approximately 40 plans failed. Given this trend, the number could be even higher in 2013.

It is never too soon or too late to establish a dialogue, and it bears repeating: It is imperative that companies engage their shareholders, those who vote their shares and the ever influential proxy firms, to confirm that management and its board care about shareholders’ opinions and value their input to make sure an executive plan is worthy of a yes vote. The companies cited above would certainly agree it was well worth the effort.

Marilynn Meek is a Vice President at Financial Relations Board and brings over two decades of experience as an officer of Wall Street securities firms and IR agencies. She provides strategic communications programs that include IPOs, M&As, capital raising initiatives, shareholder and analyst communications, and financial crisis communications for micro-cap to Fortune 500 companies.

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