Is Executive Compensation a New Marketing Ploy by Law Firms?

While the days of being “Lerached” are thankfully long gone, a new potentially litigious trend in the public company world seems to be emerging.

CEO Pay

 
This time the subject is executive compensation.  And unlike
those days prior to the infamous class-action lawyer William Lerach getting “Lerached”
himself, this time more than one law firm may be joining the fray.
 
I’m not one for being an alarmist, so don’t start worrying yet.  But one never knows, and perhaps PW Insight will be breaking this story first.  Just be aware that after two years of Say-on-Pay being part of the proxy lexicon, it seems that suddenly a number of law firms are launching “investigations” into potential breaches of fiduciary duties by boards of directors, seeking executive compensation approval.
 
Funny thing is that while the law firms are writing directly to these companies, they also are issuing press releases over the national wire services.  So far that we can tell, no company has publicly responded to the allegations.  And they shouldn’t.
 
All of the press releases we have reviewed thus far appear to use the same copycat language. They also have embedded links for interested shareholders to contact these law firms with words like “protect your investments, free of charge,” not to mention “Attorney Advertising” posted on the bottom of each release. Kind of a sick way of soliciting business, don’t you think?
 
While the 2013 proxy season is still far away, and perhaps nothing will come of this, public companies nevertheless must pay attention.
 
According to a recently published paper by law firm Paul Hastings titled, “Staying in Front of Shareholder Litigation Challenges to Executive Compensation,” nearly 80 companies failed to receive majority support on executive compensation since the Say-on-Pay rule was enacted.  The paper concluded that executive comp issues are “poised to escalate” and advised that companies should consider strengthening reliance upon the advice of independent, outside consultants by adapting “new corporate best practices” and engaging separate, independent compensation consultants for both the compensation committee and the board.
 
Everyone’s trying to be innovative in making a buck these days. Hopefully, however, we will not see the return of Lerach-style tactics as part of the marketing process.

 

Roger Pondel, rpondel@pondel.com
 
 

Dow 20,000? From Bernstein’s Lips to Everyone’s Ears

Dow Jones Industrial Averages for the 2000s

I had lunch earlier this week with Ryan Martinez, a savvy, Los Angeles-based financial advisor with Alliance Bernstein, one of the nation’s most highly respected portfolio management firms, who told me his chief investment officer predicted that the Dow Jones Industrial Average will hit 20,000 in the next five to 10 years.
 
If the prognostication came from a brokerage firm, a cynic would  say the forecast was  biased, unveiled to spur more demand of  stock buys generating larger commissions.   But Bernstein is not a brokerage house.  They are in fact the  purchasers of equities and not stock sellers.
 
“Our projected stock returns may sound optimistic, but they are not,” wrote Seth J. Masters, chief investment officer of Bernstein Global Wealth Management, in a position paper. “They are well below the long-term average for U.S. and global equities and are based on conservative assumptions about economic and market conditions.”
 
Even though interest rates are at historic lows, institutional and individual investors nonetheless have been rapidly moving their capital to cash and bonds and away from equities. So maybe now, or soon, it is time to take the less-traveled  road, despite the unsettling news we read every day about the shaky economy.
 
Martinez, always the voice of reason, told me that the 20,000 Dow projection “in no way reflects short-term positioning.  It’s hard to time the market, and you don’t want to be extreme on either end of the spectrum.”
 
The cynic in me thinks Alliance Bernstein may be  using its clout and media know-how to start a rumor, albeit one that we all hope is true and becomes a self-fulfilling prophecy.  But these are smart folks, their hypothesis seems sound and conservative, and their prediction is receiving widespread publicity, including a Sunday column in the NewYork Times.
 
So all I have to say is …  From Bernstein’s Lips to Everyone’s ears.

 

Roger Pondel, rpondel@pondel.com
 
 

Bankruptcy’s Impact on Brand Perception

Largest Bankruptcies

20 largest bankruptcies of 2012 (Source: Good.is)

San Bernadino this week became the third California city in the last month to seek bankruptcy protection because it could not close a $45.8M budget gap.  Similarly, Stockton and the small resort town of Mammoth Lakes both sought financial protection due to large budget deficits.
 
Lack of funds is the primary reason for the filings.  Basically, these municipalities are spending
more money than they actually earn from taxes, fees and other revenue.
 
According to the Administrative Office of the U.S. Courts, bankruptcies in the U.S. have more than doubled from 2007 to 2011, topping its highest point ever at 1,571,183 filings for the year ending March 31, 2011, although 2012 saw a 13 percent drop over last year.
 
The soured economy certainly impacted the rise in bankruptcies.  While the ability to secure credit may be hampered, and for cities like San Bernardino, bond ratings may be downgraded, the question remains: Does bankruptcy have the same negative brand impact it did a decade ago even in today’s soured economy?
 
Take General Motors for example. The company filed for bankruptcy protection on June 1, 2009, the fourth largest in the nation’s history.  The brand initially took a big hit in the media and financial markets.
 
GM however quickly emerged from bankruptcy only 40 days later with the help of the U.S. Treasury and recently announced June 2012 sales of 248,750 vehicles in the U.S. alone, the company’s highest since September 2008.
 
General Motors today is a company with a new, reinvigorated brand identity.  Yes, new vehicles, increased revenues and good earnings help.  It’s sometimes hard to remember that only a couple of years ago the company was on the brink of financial disaster.
 
The key to success is effectively managing communications during the bankruptcy process.  At the time of the Detroit automaker’s bankruptcy filing, GM’s CEO Fritz Henderson promised that the fallen corporate giant will be reformed and that “business as usual is over.”
 
The strategy seemed to work. Making sure all audiences are informed of a company’s reorganization plan is essential for success. Bankruptcy is not permanent, but a tool to help protect companies and individuals from creditors while a restructuring is put into action.
 
So, the answer might be that bankruptcy does not have the same negative connotation it once had given today’s uncertain marketplace.  Done right, the results can be positive and even generate new investment opportunities.  Done wrong, the repercussions can be disastrous.
 
All eyes now are on Scranton, Pennsylvania.  The cash-strapped city last week cut the pay of its municipal workers to $7.25 an hour and might be the next local government to declare bankruptcy.

 

George Medici, gmedici@pondel.com
 
 

Sunday Mornings May Never Be the Same

My favorite part of Sunday morning is relaxing over a cup of coffee while leisurely reading both the New York Times and Los Angeles Times–every section–without that harried feeling of having to skip and skim stories like I do the rest of the week, or use the speed reading techniques I learned from my 11th grade English teacher, Mr. Coughlin.

The Times-Picayne (Photo Source: wikipedia.com)

 
I even savor the smell of the newsprint, which combined with the coffee aroma, exudes a state of calm. But I am worried that the Sunday papers may not be around too much longer. And while the thought of sipping coffee with an iPad doesn’t exactly thrill me, I am reluctantly bracing for the future. Of course, it’s all about technology, which is changing our lives–granted, mostly for the better–and changing the media landscape at breakneck speed.
 
Within the last couple of weeks alone, The Times-Picayune in New Orleans told the world it will be cutting back its print editions to three days a week.  That same day, three other newspapers followed suit.  Like a tsunami, a few days later, a Canadian newspaper chain, Postmedia, announced that its three newspapers will be eliminating their Sunday editions.
 
These were not the first such actions, of course, but the pace of such change seems to be picking up speed.  The shift to online news certainly makes sense from an economic point of view. It’s just that it makes me sad and I would think that there are others like me that feel the same way.
 
But it’s not just about relaxing with the paper on Sunday mornings. It’s quality of content, as well as
quantity, with lost columns and generally fewer investigative pieces and features.  And add to that, perhaps saddest of all, is lost jobs.  When the change takes place at The Times-Picayune, expectations are that about a third of the journalists will be cut.
 
I’d like to think that in the biggest U.S. cities we’ll always have our Sunday papers.  But I guess
there’s a good chance that we will not. So as my psychotherapist wife repeatedly tells me, enjoy the moment. Sunday mornings may never be the same.

 

Roger Pondel, rpondel@pondel.com
 
 

USC Wilkinson Scholarship

Samantha Wan

Samantha Wan is this year’s winner of the USC Wilkinson Scholarship.  A first-year graduate student majoring in strategic public relations at USC’s Annenberg School for Communication & Journalism, Samantha earned an undergraduate degree in business from University of California, Santa Cruz.  The annual award was established in 2007, following the death of Cecilia Wilkinson, an active USC alum and principal of PondelWilkinson who was with the firm for 25 years.
 
 

Best Practices

Taxi Driver Confessions

Ever try talking to a New York City cab driver?  Think about one of the things you almost always ask.
 
Getting to where you are going in one piece is what counts when taking a Manhattan taxi. But if you’re like me, when you’re not on the cell phone or returning Blackberry messages, perhaps you’ll engage the driver in conversation.
 
Are those your kids? As we all know, pictures of cab drivers’ kids often adorn the dashboard. How old are they?  How’s your day been so far?
 
Lauren Collins, who writes for The New Yorker and reported on an unusual public forum in Manhattan—“Out from Behind the Wheel,” sponsored by public radio station WNYC—is kinda telling us that while it’s OK to talk to cabbies, there’s one thing you should never ask.  (The forum, by the way, was for the much maligned drivers to talk about who they are; discuss strategies for coping with stresses on the road; and figure out ways to improve the industry.)
 
Collins reported that cabbies have lots of beefs that are not that unusual, from coping with drunks, to paying a $.50 MTA tax that ostensibly funds city workers’ pension plans, to credit card readers that don’t work, and more.
 
The one passenger question, however, that gets the goat of New York City taxi drivers, is “Where are you from?” Unfortunately, Lauren did not tell readers why the cabbies said they dislike that question so much, but she reported that passengers should “never” ask it.  Thanks for the advice.  Hopefully, at least some of us will remember it next time we are in a New York City cab.

 

Roger Pondel, rpondel@pondel.com
 
 

Holiday Wonder

Stevie Wonder (Photo Credit: Vikie Rubinson)

About a year ago, I was on a trip in the northern region of India when my raft carrying eight travelers from various parts of the world capsized in a murky, foul-smelling, bone-chilling Class-5 rapid.  During the tortuous two kilometer ride through the churning water (the rapid was known as the Black Cobra, which should have been a hint) all I could think about was: “Keep your head up!” and “Breathe in more air than water!”  Seems simple enough, but at the time the basics of survival seemed more elusive than I would have liked.  In retrospect, this experience prepared me for what was to unfold in 2009.
 
I’m a big proponent of the theory that by challenging adversity one can yield extraordinary outcomes.  We often see this in the heroes we all admire – whether it’s sports, business, architecture or music – many of our idols, in addition to their extraordinary talents, usually have some story of struggle that prepared them for great achievement.  And often it’s just the sheer will to press on that propels them into another dimension.
 
We all pressed forward in 2009, and with the help and determination of colleagues, friends and family, we kept our heads up and carried on.  And like the moment when I was yanked out of the water by a crazy hippy Irishman, I can now breathe more easily as I prepare for 2010.  While I don’t know what lies ahead, I do somehow know that in an odd way I’m better equipped now that another good, hard fight is behind me.
 
Yesterday, Stevie Wonder was in our building lobby.  A few of us casually found ourselves in his general vicinity hoping to catch a closer glance.  Knowing that Mr. Wonder is one of Roger Pondel’s heroes, we took the initiative to speak with him and minutes later found ourselves escorting the musical genius to our office to meet Roger (we now know that he has a wonderful sense of humor and enjoys a good prank or two).  For the first time in the history of the firm, Roger was speechless.
 
In a curious way, this crowning event seemed a fitting way to end the year.  It was surprising, inspiring, humbling and downright funny.  It also reminded me that every treacherous path has its bright spots.  Happy Holidays!  See you down the road.

 

PondelWilkinson, investor@pondel.com

Cash is King

…but not at Commerce, an upscale New York City restaurant that recently went “plastic only.” 
 
According to the Wall Street Journal, the restaurant’s co-owner, Tony Zazula said, “If you don’t have a credit card, you can use a debit card.  If you don’t have a debit card, you probably don’t have a checking account.  And if you don’t have a checking account, you probably shouldn’t be eating at Commerce to begin with.”  While his sentiment may actually be true, I think this is one case where media training might have helped.
 
While most diners at the New York’s most exclusive restaurants already use credit cards to pay for their meals, it strikes me that consumers using credit cards overzealously is partly to blame for the current economic predicament.  Can accepting cash really be that bad?
 
Spaghetti with tomato sauce and ricotta cheese at Commerce — $24
 
Taxi to get from your midtown hotel to Commerce for dinner (including tip) — $12
 
Ability to use cash to pay for your meal – PRICELESS
 
Check out Commerce next time you’re in NY for business and let us know how it is.

 

Laurie Berman, lberman@pondel.com
 
 

Finally, Sound Fiscal Policy

…to get the economy on track.  Only, it’s more than two thousand years old.
 
“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”– Cicero, c. 55 BC

 

PondelWilkinson, investor@pondel.com