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Watch What You Read

Photo credit: Getty

Shopper with Lord & Taylor bag. Photo credit: Getty

Perhaps it was trumped (pun intended) by bigger news, but the Federal Trade Commission recently announced its first-ever enforcement action involving a subject near and dear to the hearts of professionals in the investor and public relations business—the unfortunate, increasingly blurred lines between real and paid-for news.

The FTC action received almost no media coverage, which was too bad. The case involved retailer Lord & Taylor, which ultimately settled, over what appeared to be a legit story about the company’s clothes, published on the fashion website Nylon. But it was really an ad.

With print publications, such trickery is rarely an issue. We all have seen that smallish line saying, “Paid Advertisement.”  Online, however, that’s not often the case.

While there is nothing wrong with online advertising, readers should be made aware that the content is sponsored.

In a press release, Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said, “Lord & Taylor needs to be straight with consumers in its online marketing campaigns. Consumers have the right to know when they’re looking at paid advertising.”

So shame on Lord & Taylor, and perhaps even a bigger shame on Nylon. The real message resulting from the enforcement action is: Readers, watch what you read these days, particularly online, because it is becoming more difficult to tell the difference between ads and articles.

— Roger Pondel, rpondel@pondel.com

 

What Public Company Directors Should Know in 2014

Being a public company director today is exponentially different than it was just a decade ago.  Rules and regulation changes and increasing investor activism make navigating corporate governance duties more challenging and time consuming.

As the New Year approaches, law firm Akin Gump provides a list of 10 topics that will be important for directors in 2014.  For current directors, or those seeking board positions, and for corporate officers who directly interact with the board, it’s a good summary of what to be prepared for.  Below are a few of the more noteworthy topics:

    • Address Cyber Security.  Akin Gump cites a recent study by the Ponemon Institute, which found that “in the past year the number of successful cyber attacks on companies surveyed jumped 42 percent compared to the prior year.”  According to CFO Magazine, companies need to better understand the risks posed by cyber attacks including potential lawsuits, reputation damage and customer losses, as well as growing regulatory scrutiny over the adequacy of data-security measures.  Actions have been brought against more than 40 companies by the FTC for data breaches (saying that “failures to prevent unauthorized access to consumers’ information constitute unfair or deceptive acts.”)
    •  Set Appropriate Executive Compensation.  While some think say-on-pay will remain a hot button issue, others, like CNBC senior editor, John Carney, believe that say-on-pay failed with 97 percent of U.S. companies receiving shareholder votes supporting their executive pay packages through the first half of 2013, according to Equilar.  Even so, it’s apparent that shareholders and proxy advisory firms are continuing to focus on pay-for-performance, while investor activists are targeting disparity between pay for executives and other employees.  In fact, the SEC recently proposed a new rule that would require publicly traded companies to disclose the ratio of its CEO’s pay to the median compensation of its employees.
    • Determine Whether the CEO and Board Chair Positions Should be Separated.  CFO Magazine reports that during the 2013 proxy season, requests for an independent board chair were the second-most-frequent shareholder proposals submitted to companies.  According to the 2013 Spencer Stuart Board Index, 45 percent of S&P 500 companies split the CEO and chairman roles, up from 23 percent 10 years ago.
  • Cultivate Shareholder Relations.  Activist investors are here to stay.  Akin Gump says that proxy fight announcements are now at their highest level in four years. Even large pension funds are getting in the act. By knowing and actively engaging shareholders, directors can develop stronger relationships and management credibility, both of which come in handy when facing a potential proxy battle.  Equally important, and the main tenet of any good investor relations program, is keeping your message consistent.  Whether speaking with an activist, a friendly long-term investor or a mom and pop shareholder, the message should be the same.  It’s also important to determine how involved directors should be in the shareholder communications process. This is a company-by-company decision with current viewpoints varying widely.

The public company director position can be very rewarding by helping shape a business’s future, but it’s definitely not an easy task.  Regulatory bodies, proxy advisory firms and the investment community are keeping a sharp eye on what’s happening in the boardroom, so these directors must stay on top of the issues that matter most to shareholders.

— Laurie Berman, lberman@pondel.com