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ADT Announces Acquisition of Acme Security Systems

Loss Prevention Media -

ADT has recently announced the completed acquisition of Acme Security Systems. Acme will join forces with recently acquired Aronson Security Group (ASG) to further drive commercial growth and expansion.

Headquartered in San Francisco and founded in 1974, Acme is among the largest privately held security systems integrators in the Bay Area, focusing on electronic security systems, access control, video networks and more.

“ADT and Acme have a shared vision for exceptional service, and this alliance not only enhances our leadership in the market, but substantially extends our service capabilities for our valued customers,” said ADT President Jim DeVries. “We’re thrilled to welcome the talented Acme team members as contributors in a significant chapter of ADT’s history.”

“For our employees to unite with one of the most successful and recognizable security brands in history is a true honor,” added Steve Harris, founder of Acme Security Systems. “ADT believes in their ability to provide unparalleled service to the commercial and national account market, and their enthusiasm is infectious. Together, we’ll be able to provide significant value for current and future customers.”

For more information, visit

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Cybersecurity Insurance 101: Focus on What’s Excluded

CGI – Corporate Governance Institute -

Despite the inexorable rise in small-cap data breaches, 80 percent to 90 percent of companies with revenues below $1 billion have no cyber insurance, according to the insurance data firm Advisen. Since many smaller companies lack the balance sheet strength to absorb the costs associated with cyber breaches, cyber insurance penetration in this segment will […]

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Compliance into the Weeds-Episode 74, Continued Fallout from Somers

FCPA Compliance & Ethics -

In this episode, Matt Kelly and I continue our exploration of the fallout from the recent Supreme Court decision in Digital Realty Trust v. Somers in light of the filing by BioRad in its appeal of the whistleblower award to its former General Counsel, Sanford Wadler. Wadler had internally reported allegation of FCPA violations by [...]

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The Cyber Security Incident Response Plan: AP’s Role

Loss Prevention Media -

What is the role of the asset protection department in the event of a cyber incident? It’s true that IT is typically in charge of the bulk of the prevention methods, such as firewalls, endpoint security monitoring, network device configuration, and so on. But an effective cyber security incident response plan should extend beyond IT and into other organizational departments—including AP.

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Don’t become another data breach statistic. Get our FREE Special Report, Data Security:  Data Loss Prevention Best Practices and Proven Policies to Combat Data Breaches right now!

Tom Meehan, CFI, contributing writer, exhorts asset protection professionals to reframe their thinking in a recent article for LPM Online. Since the core responsibilities for cyber event prevention commonly fall under the realm of IT, he suggests, then it behooves AP professionals in a retail organization to learn how they can help respond to an incident when it arises. Investigations are one such example. From the article:

It’s Friday, and you are the vice president of AP. You get a phone call from your organization’s chief information security officer (CISO). You have never received such a call before. He or she tells you about an unauthorized device detected on a computer in one of your stores. The IT team can perform an investigation from a cyber‐forensic standpoint and needs your help to do the physical investigation. You are officially involved in the cyber incident and asked to investigate it. The CISO says anyone involved in the investigation must sign a nondisclosure agreement (NDA) and work directly with the chief privacy officer (CPO) and CISO of the company before taking any actions.

Much like any investigation, you gather the facts from the CISO. In this example, someone plugged a keylogging device into a computer in a hiring center. A keylogger is a keystroke‐logging (or keyboard‐ capturing) device or software that records everything typed on a keyboard, generally covertly. Data can then be retrieved.

Now you have the facts, and you start your investigation with a quick evidence assessment and acquisition: is there video, access or alarm logs, time‐clocking info, or Wi‐Fi login info? In this case, you happen to have an excellent video of the person placing the keylogging device on the computer. The suspect works for the company. You create a report in conjunction with your CISO and CPO. The decision is made to interview the suspect. In this case, the suspect admits to trying to steal info from the computer. Luckily, the prevention methods blocked the device from working, and no information was vulnerable.

Check out “Stop Trying to Prevent a Cyber Incident and Start Planning for One” from the February 2018 issue of LPM Online to learn more and read the top five things to consider when you’re investigating a cyber incident.

If you’ve missed any of our previous LPM Online editions, go to the Archives page at the end of the February 2018 edition to see what you’ve missed. Be sure to be an LPM digital subscriber so you are the first to know when new issues are available. If you haven’t already, sign up for a FREE subscription. (Note: if you’re already subscribed, the previous link will take you to the current issue of the print magazine.)

The post The Cyber Security Incident Response Plan: AP’s Role appeared first on LPM.

Breaking News in the Industry: March 13, 2018

Loss Prevention Media -

Employee jailed in near $60K retail theft scheme

A former Walmart employee is accused of conspiring to steal nearly $60,000 in a theft scheme spanning three months. Charged is Jatmarie Merced, 36, of Bethlehem. Co-defendants previously named include: Kristopher Herrera, then 19, of, Bethlehem Township; and Kory Cherry, Jared Lugo, Gabriel Pozo and David Burgos, no addresses provided. Court records state just Burgos didn’t work for Walmart during the time of the alleged thefts. Bethlehem Township Police Department detectives on Feb. 2, 2013 began investigating a series of thefts at Walmart. A loss prevention associate reported Merced and the five others were stealing from the store from November 2012 to February 11, 2013.

Cherry in an interview with investigators reported witnessing Merced allegedly “under ring” televisions and other electronics, but create a “price check” instead of an actual sale.  The person would then walk away with the items, but Merced allegedly never took any money for the store and also conspired to later acquire some of the merchandise. Merced alone conspired to steal $7,240 worth of items, running the gamut from iPads and televisions to laptop computers and cellphones to gaming systems and DVDs, according to police. Investigators on March 6, 2013 obtained additional evidence, including files, documents and video surveillance footage. Other workers in interviews with police reported seeing Merced steal merchandise by “under ringing” and pointed her out to detectives on video surveillance footage. Police said the loss for Walmart by all six individuals in the scheme totals $57,288. [Source: LehighValleyLive]

Women spray Victoria’s Secret employee with pepper spray, steal $11K worth of bras

Folsom Police in California arrested two women after they allegedly sprayed a Victoria’s Secret employee with pepper spray and ran with several large bags filled with clothing. The incident happened just before 8 p.m. Friday. According to police, two women sprayed an employee with pepper spray while trying to escape with thousands of dollars worth of clothing. The employee was not hurt and was able to give officers a description of the suspect’s car. A nearby officer saw the suspect’s vehicle and stopped them. The officer found the stolen bras and took both Blanca Thalia Quintero, 22, and Antanae Lastar Welch, 19, into custody. Both women were charged with robbery and conspiracy. Quintero was also charged with using tear gas to commit a crime and unlawful possession of tear gas. In addition to those charges Quintero had an outstanding arrest warrant from San Mateo County for theft. During the investigation, officers found a counterfeit $100 bill on Welch. Both women were booked into the Sacramento County Jail.  [Source: ABC10 Connect]

Customer satisfaction: These are America’s best-liked retailers

Americans find shopping at the top digital retailers to be a better experience than shopping in the highest rated brick-and-mortar chains, according to a new report from the American Customer Satisfaction Index (ACSI). The Internet Retail category did drop slightly, scoring an 82 on the 100-point scale after putting up an 83 last year. Department and discount chains dropped as well, to a 77 from a 78 in 2016, while specialty retail fell from an 80 to a 79. In addition, L Brands was the only company in either department and discount or specialty to equal Amazon’s 85 as the top-scoring company. “Amazon is nearly inescapable in retail right now, as the e-commerce giant makes moves into grocery stores and pharmacies, expanding its footprint into multiple retail industries,” said ACSI Managing Director David VanAmburg in a press release.

What did the survey say? (Click here to see a list of the top 20 companies). Across all retail categories, consumer satisfaction has stayed about the same as last year. The ACSI Retail Report shows that the overall retail sector scored a 78.1, down only slightly from last year’s all-time high of 78.3. Costco scored highest among all department and discount stores with an 83, the same as it scored last year. It was followed by Nordstrom with an 81, then its warehouse-club rivals BJ’s and Walmart’s Sam’s Club at 80, which Kroger’s Fred Meyer also scored. [Source: USA Today]

Police use Taser on man suspected of stealing from store

Target in Bel Air, Maryland, Saturday allegedly assaulted two police officers as he tried to flee, Bel Air Police said. Jonathan Andrew Myers, 19, is charged with resisting arrest, theft $100 to $1,500, possession of drug paraphernalia and two counts of second-degree assault on law enforcement, parole and probation, fire or EMS. Bel Air Police were called around 9 p.m. Saturday to Target for a possible theft in progress. Loss prevention staff at Target, monitoring Myers via the store’s surveillance cameras, allegedly saw Myers putting merchandise inside two backpacks, according to a news release from the Bel Air Police Department. Myers, pushing a mountain bike he had removed from display, approached the register area and after passing all points of sale, was confronted by loss prevention employees inside the store.

Myers allegedly tried flee the store, Bel Air Police said. Bel Air officers immediately responded and attempted to apprehend Myers, who allegedly began fighting with the responding officers. One officer used a departmental issued TASER to subdue Myers and stop his alleged assault on another officer. Myers stopped briefly, but allegedly continued to resist being arrested and fight with officers until additional officers arrived and were able to get him handcuffed. Myers was then taken to Upper Chesapeake Medical Center by Bel Air volunteer fire company ambulance for an eye laceration and evaluation as a result of falling during the incident. Once Myers was treated and released, he was taken to the Harford County Detention Center and was being held Monday on $3,000 bail. During the altercation, Cpl. Alex McComas, a 17-year veteran of the agency, sustained minor injuries and was also taken to Upper Chesapeake Medical Center. He was treated and released from the hospital early Sunday morning. [Source: The Baltimore Sun]

Florida man arrested after worker discovers phone recording in restroom

A Florida man was arrested Saturday afternoon after a Walmart employee discovered a recording cell phone perched atop a mirror in a restroom near the store’s merchandise pickup counter, the Clermont Police Department said. “She took the phone to the loss prevention office,” Clermont police Officer Erin Razo said. “The loss prevention associate looked into the unlocked phone in an attempt to obtain owner information, and he observed a file containing at least three photos indicative of child pornography.” Investigators said the loss prevention officer discovered photos of a man who returned to the store searching for his lost phone. Jacob Perritt, 39, of Clermont, who police said had methamphetamine on him, was arrested and taken to police headquarters, where he admitted to detectives that pornographic photos were downloaded onto the phone, Razo said. Investigators said Perritt has an active warrant out of Michigan for accosting children for immoral purpose. Perritt was booked into the Lake County Jail on three counts of sexual performance by a child, possession of methamphetamine, prohibition against giving false name or false identification by person arrested or lawfully detained and video voyeurism. Perritt is jailed without bail, police said. [Source: Dayton Daily News]

California bag check claims can proceed as class action

The U.S. District Court for the Northern District of California granted a former Eddie Bauer employee’s request for class certification as to several of her claims over bag checks under California wage payment law. The court’s holding certified as a class all current and former nonexempt retail employees who worked for the company throughout California at any time from Sept. 28, 2012, to the present. The plaintiff was employed by the company as a retail salesperson from November 2013 until March 2016. In September 2016, on her own behalf, as well as on behalf of a class of employees, she filed suit alleging that the company failed to compensate its nonexempt retail employees for time spent conducting bag checks or security inspections when clocking out for a meal break, rest break or any other departure from work. Although Eddie Bauer had a written policy in place regarding the inspections, such policy was silent as to whether the time spent conducting such inspections was considered compensable.

An Eddie Bauer representative testified that it was the company’s policy to train managers to conduct the bag checks while nonexempt employees were clocked in, thus ensuring that employees were paid for such time. However, the plaintiff testified that in practice “[e]verybody waited until after they clocked out” and then frequently had to wait for the manager to become available to conduct the inspection. The plaintiff moved for class certification on a number of her claims. Eddie Bauer objected, asserting that many of the requirements necessary to establish class certification were not present—including that there were no “questions of law and fact common to the class.” The company argued that a common-sense reading of the policy “makes clear that employees remain clocked-in while waiting for a manager and during the bag check itself”; thus, employees were not similarly affected by the policy. Rejecting the company’s “strained reading” of the policy, the court concluded that “whether Eddie Bauer’s policies required security checks to be conducted off-the-clock remains a common question capable of generating common answers.” Thus, the court ultimately concluded that class certification was appropriate. [Source: SHRM News]

The post Breaking News in the Industry: March 13, 2018 appeared first on LPM.

Starbucks Corp Proxy Voting Recommendation

Corporate Governance -

Starbucks Corp (SBUX), operates as a roaster, marketer, and retailer of specialty coffee worldwide. Most shareholders do not vote because reading through 70 pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts […]

The post Starbucks Corp Proxy Voting Recommendation appeared first on Corporate Governance.

SEC Guidance on Public Company Cybersecurity Disclosures

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Lillian Brown, Meredith Cross, and Benjamin Powell, Wilmer Cutler Pickering Hale and Dorr LLP, on Tuesday, March 13, 2018 Editor's Note: Lillian Brown, Meredith Cross, and Benjamin Powell are partners at Wilmer Cutler Pickering Hale and Dorr LLP. This post is based on a WilmerHale publication by Ms. Brown, Ms. Cross, Mr. Powell, Jonathan Cedarbaum, and Alan Wilson.

On February 21, 2018, the Securities and Exchange Commission (SEC) approved an interpretive release updating guidance on public company disclosure and other obligations concerning cybersecurity matters. The interpretive release, titled “Commission Statement and Guidance on Public Company Cybersecurity Disclosures,” Release No. 33-10459 (Guidance), had been scheduled to be considered at an open meeting on February 21, which was canceled. Much of the Guidance is devoted to reiterating and expanding upon the Division of Corporation Finance’s 2011 CF Disclosure Guidance: Topic No. 2, Cybersecurity, which was issued to assist companies in assessing what disclosures might be required about cybersecurity risks or incidents. WilmerHale discussed the 2011 guidance here. Emphasizing the increasing significance of cybersecurity incidents in recent years, the new Guidance further illustrates potential disclosures that companies should consider and comments on matters beyond disclosure obligations. The Guidance stresses the importance of cybersecurity policies and procedures, and discusses the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD selective disclosure prohibitions. Recognizing that the cybersecurity landscape continues to shift, Chairman Clayton commented in a separate statement that the Commission “will continue to evaluate developments in this area and consider feedback about whether any further guidance or rules are needed.”


The Hidden Power of Compliance

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Stavros Gadinis and Amelia Miazad (Berkeley Law School), on Tuesday, March 13, 2018 Editor's Note: Stavros Gadinis is professor of law and Amelia Miazad is founding Director and Senior Research Fellow of the Business in Society Institute at Berkeley Law School. This post is based on their recent paper, and is part of the Delaware law series; links to other posts in the series are available here.

Although corporate wrongdoing can reach an immense scale with disastrous ramifications, holding boards accountable has long been perceived as elusive. Under both state fiduciary duty law and federal securities doctrine, directors and officers are liable only if they were aware of corporate failures or reckless in ignoring them. Since providing evidence of awareness or recklessness is exceedingly hard, corporate law scholars have long seen these requirements as raising an almost impenetrable shield over the board.

Instead, we demonstrate that the evidentiary path to boards’ state of mind is nowadays more open than it has ever been before, due to the revolutionary growth of compliance departments in recent years. Corporate law literature has largely dismissed compliance as ineffective, fearing that in-house monitors would be too weak or too loyal to constrain corporate wrongdoing. Contrary to this conventional wisdom, we argue that legal and compliance experts’ reports and recommendations, especially if ignored at the time they were made, often expose the board to liability once misconduct is revealed.


What a Difference a (Birth) Month Makes: The Relative Age Effect and Fund Manager Performance

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Kevin Mullally (University of Alabama), on Tuesday, March 13, 2018 Editor's Note: Kevin Mullally is Assistant Professor of Economics, Finance, and Legal Studies at the University of Alabama Culverhouse College of Commerce. This post is based on a recent article, forthcoming in the Journal of Financial Economics, authored by Professor Mullally; Jianqiu Bai, Assistant Professor of Finance at Northeastern University D’Amore-McKim School of Business; Linlin Ma, Assistant Professor of Finance at Northeastern University D’Amore-McKim School of Business; and David Solomon, Assistant Professor of Finance at Boston College Carroll School of Management.

The academic literature in finance has focused a lot of attention on how managerial characteristics impact firm performance. One such characteristic that has received considerable study is overconfidence. This is generally thought of as managers being overly optimistic about their own ability or their firm’s prospects. Although there is evidence that managerial overconfidence can benefit firms via higher innovation, a majority of papers find that overconfidence negatively impacts firm value. A curious aspect of this literature is that the primary object of study is “overconfidence,” rather than just “confidence.” Papers such Malmendier and Tate (2005) find that greater confidence is associated with greater mistakes. Interestingly, this notion that confidence is associated with worse performance contrasts with a large literature in psychology that finds a positive relation between confidence and performance.


Federal D&O Litigation: Washington’s New War Zone?

CGI – Corporate Governance Institute -

When the United States entered World War I, the U.S. Army boosted recruitment with a poster. Uncle Sam, symbolizing the federal government, pointed to the viewer: “I want you.”  So it is with the many federal agencies that today have oversight over major companies and their directors and officers (D&O). If you or your organization […]

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TRACE: Anti-Bribery Enforcement Actions Decrease in U.S., Hold Steady Elsewhere in 2017

Corporate Compliance Insights -

Annapolis, MD (March 13, 2018) – TRACE International, the globally renowned anti-bribery standard-setting organization, today announced the findings of its 2017 Global Enforcement Report (GER), noting a reversion to the norm in U.S. enforcement actions concerning bribery of foreign officials following the previous year’s record-setting pace, while enforcement actions by non-U.S. agencies registered a slight The post TRACE: Anti-Bribery Enforcement Actions Decrease in U.S., Hold Steady Elsewhere in 2017 appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

Forensics, Unpredictable Enforcement and the Increasing Pace of Change

Corporate Compliance Insights -

Q&A with Gerry Zack, Incoming CEO of SCCE Today we are pleased to share an interview between CCI’s Founder, CEO and Publisher, Maurice Gilbert and incoming CEO of the Society of Corporate Compliance and Ethics (SCCE). Gerry Zack is a compliance and anti-fraud expert and author, specializing in the prevention, detection and investigation of fraud, noncompliance The post Forensics, Unpredictable Enforcement and the Increasing Pace of Change appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

Compliance Director – Premier International Pharmaceutical Company (Chicago Area, IL)

Corporate Compliance Insights -

We are representing a premier international pharmaceutical company with consistent revenue growth and 5-year income growth of 92%.   Our success is built on a strong pipeline of products; we achieve this by our commitment of 17% of revenues to R&D. Why Join Us: Consistent leader in outperforming industry in revenue and net income Opportunity to The post Compliance Director – Premier International Pharmaceutical Company (Chicago Area, IL) appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

UK Product Recall Code of Practice Launched

Global Compliance News -

7 March 2018 saw the long-awaited public launch of the UK Government’s new
Code of practice on consumer product safety related recalls and other corrective
actions (the “Code”). A copy of the Code can be obtained here and a link to the BEIS
press release is here.

Preparation of the Code was one of the recommendations of the UK Government’s Working Group on Product Recalls and Safety (see further our alert here), was sponsored by the Department of Business Energy and Industrial Strategy (“BEIS”) and was facilitated by the British Standards Institute (“BSI”). Baker McKenzie partners John Leadley and Kate Corby, supported by Senior Associate Jo Redmond, participated in the drafting committee and summarise below the key messages of the Code.


The Code is informed by behavioural insights research and sets out best practice guidance for both businesses (in Part One) and regulators (in Part Two) alike concerning effective monitoring, assessment, notification and correction (including recall if needed) of product safety issues. The Code applies to all sectors that are not otherwise covered by alternative sectorspecific national guidance (such as food, medicines, medical devices and vehicles). It is intended for use by all business sizes, from small companies right up to large multi-nationals, and for both B2C and B2B entities. The Code assumes that businesses placing products on the market have already addressed their responsibility to supply only safe products and guidance on this requirement is therefore not included. However, Annex A to the Code, contains a summary of important aspects of the regulatory context and potential strict liability for defective products.

The advice for businesses focuses first on planning: how can a business best prepare itself to react to a situation where one of its products is or becomes unsafe?

Detailed consideration is given to what information should be included in a product safety incident plan (“PSIP”), how that should be communicated throughout the business and who is accountable for it. Key topics for businesses to consider when preparing a PSIP (or evaluating an existing one), include:

  1. understanding where all component parts come from and ensuring that traceability records up and down the supply chain are clear and up to date; and
  2. having in place detailed plans to cover:
    • monitoring to enable the swift identification of product safety-related trends;
    • risk assessment and root cause analysis processes;
    • legal notification requirements
    • internal and external communications; and
    • corrective action decision-making.

Having a thorough, up to date and widely understood PSIP will assist a business with responding quickly to a product safety issue and, assuming the PSIP is implemented correctly, that reflex will directly benefit consumers by ensuring that the risk of harm to them is understood and appropriate measures taken promptly to address that risk.


The primary concern of any business when reacting to a (potential) safety issue must be addressing the risk of harm to consumers. The Code provides useful guidance on how to do so by implementing a corrective action plan, which will of course need to be tailored to effectively deal with the particular facts and challenges of each safety issue.

For example, the Code provides guidance on developing an effective communications plan, as well as a suggested contacts list. Successful communication with consumers is a fundamental component of an effective corrective action plan, and the lengthy guidance in the Code reflects this. The Code also sets out the fundamentals of a legal notification plan and encourages businesses to make sure that relevant regulators are brought into the picture at an appropriate and early stage.

Taking all of these elements together, the Code includes a helpful flow-chart of a “typical corrective action sequence” and provides guidance on what corrective action might be appropriate in a given scenario. The Code also provides guidance on how to conclude your corrective action and a framework for considering what lessons can be learned from an incident to further improve future reaction to a safety issue.


Part Two of the Code covers best practice on how regulators can:

  1. effectively monitor incidents and analyse the associated data;
  2. support businesses in: (i) the preparation of their PSIP, (ii) monitoring of incidents and (iii) implementing appropriate corrective action; and
  3. respond proportionately if a business fails to take proper action in response to a safety

The Code also describes the regulatory framework, setting out the roles and responsibilities of the relevant entities that have a regulatory responsibility for consumer product safety. It then lists considerations applicable to how market surveillance authorities can ensure their staff are equipped to perform the role required of them and what data feeds in to the decisions they will have to make in the course of their duties.

Annex C of the Code sets out a checklist for assessing a PSIP, which we expect regulators may use as a framework for discussions with businesses about the Code.


Provision of government endorsed practical and granular guidance of this nature which sets out the Government’s expectations of businesses and regulators should only be viewed as a positive step forward. We understand that BEIS intends the Code essentially to be seen as mandatory, and will be expecting businesses in sectors covered by the Code to follow it. The Code also provides useful insight into what guidance regulators will be expected to follow in this context.

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The Dark Side of Commitment

CGI – Corporate Governance Institute -

The fish rots from the head, Chinese expression that stands out that the Board of Directors, as head of the organization is key to have a culture that promotes compromise among people working their; on the contrary, the company will not stand for long. Commitment is the result of a tacit or formal agreement among […]

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Farewell to John Reed, the Death of Pennoyer v. Neff and the Elbit FCPA Enforcement Action

FCPA Compliance & Ethics -

The bane of every first-year law student, at least in Civil Procedure, is Pennoyer v. Neff. This is because (1) it is usually studied very early in the semester; (2) is viewed as the first true introduction to how strikingly convoluted legal issues can be; and (3) has the most turgid legal writing from the [...]

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The Power of Corporate Diplomacy

BRINK News -

As corporations become increasingly active players in different walks of life, they need to pay more attention to a wider and wider range of stakeholders beyond their investors and customers. This notion is summed up in the phrase, corporate diplomacy. Professor Witold Henisz recently published a book called Corporate Diplomacy: Building Reputations and Relationships with External Stakeholders.

BRINK spoke with Professor Henisz about what corporate diplomacy means for corporations and why it is important.

BRINK: First of all, what is corporate diplomacy?

Witold Henisz: It’s the act of winning the hearts and minds of external stakeholders in support of the corporate mission. So it involves going out to government officials, NGOs, community leaders, activists, understanding their goals, their aspirations, and making the case that your project or your company is contributing to them.

And then, the diplomacy part is you having to come back inside the organization and sell that to the CFO, to the head of operations, to the head of marketing. So you’re both representing the company on the outside, and representing the external stakeholders on the inside. Trying to find the win/wins.

BRINK: And why has this become significant now?

Professor Henisz: I think there’s a growing concern around corporate practices and the way the benefits are distributed; the idea that unregulated markets, unregulated business practices necessarily lead to acceptable outcomes for people is really in question.

Whether it’s the top one percent, or the stagnation in the lower-middle class, questions around equity, around fairness, and who bears the brunt of environmental, social externalities are really rising to the fore in our economy, politically. And we’re questioning the sort of ‘80s, ‘90s way of deregulation, neoliberalism, and people are trying to find a new path, a new alternative.

BRINK: Who are the stakeholders that really matter for businesses?

Professor Henisz: Businesses have always been in tune with their shareholders. Workers are a key stakeholder. But I’m more focused on what I call external stakeholders outside the value chain. So they’re not buyers, they’re not suppliers, they’re not inside the organization. They’re outside the fence of the factories.

They are the communities, politicians and nongovernmental organizations that care about environmental issues or human rights issues, and they engage in protests or make laws or policies based on these issues. So it’s a broad class of political and civil society actors that a company is having to engage with more directly and more substantively than it has in the past.

BRINK: Can you give an example of where corporate diplomacy has really mattered to an organization?

Professor Henisz: The entire oil and gas sector is really struggling with the impact of climate change. And for some time, their strategy was to sort of deny the existence of a link between extracting oil and gas and burning carbon and climate change and not really address in their financial statements what the implications would be of a carbon tax or of two degree warming.

But now we’re seeing, thanks to the task force for climate-related financial disclosure, real efforts—even by Exxon Mobil, one of the most recalcitrant companies—to disclose what it would mean and what they’re doing about it. So I think there’s been a real sea change on climate risk.

BRINK: Some people might think that corporate diplomacy is basically a sophisticated form of lobbying. Is that a risk?

“I hope companies will not just take a defensive posture where they’re protecting their interests either through lobbying or misinformation. But not all companies will make that decision.”

Professor Henisz: I think there is a risk, and I worry about that quite a bit. I used to be quite optimistic about the benefits of information flow and transparency, the fact that companies can be held to account by anyone with a cell phone.

But as we’ve seen in the recent elections in the U.S. or the UK, information can be misused, misrepresented, and people can manipulate free information flow to sow confusion and distrust.

And I worry that companies might do the same thing.

We might go back to extractive companies using social media or other forces to attack people who are proponents of doing more on climate change. And so, I think the types of strategies companies might use are still very much in question. Will they try to obfuscate? Or will they really engage these social issues?

I very much hope companies will not just take a purely defensive posture where they’re trying to protect their interests either through lobbying or through misinformation. I’d like them to take a more proactive posture where they’re really trying to be part of the solution. But not all companies will make that decision, and hopefully the stakeholders will see the difference and take that into account.

BRINK: Do you think there should be a corporate diplomat post in organizations?

Professor Henisz: I’m not yet convinced where this function needs to sit, but somebody needs to be responsible for bringing together government affairs, public affairs, communications, sustainability. Someone needs to pull all those together and do an integrated analysis of how these external stakeholders are affecting the P and L.

In some companies that happens in the risk office, in some places it happens in the general council, in some places it happens in government affairs. But the key is that somebody has to be the aggregator, because otherwise every function is working off a partial problem and toward a partial solution, and they’re often at cross purposes.

BRINK: Do you think it’s possible to put a number on either the risk or the opportunity for the P and L?

Professor Henisz: I think if we just talk in terms of rhetoric or mission or purpose, we’re not going to capture the attention of the CFO. We’re not going to capture the attention of the investment committee. We’re not going to capture the attention of the board.

We need to do our best to put these risks in quantifiable terms—and we do that for many other risks that have massive uncertainty. What will the price of oil be in ten years? What will the U.S. dollar to euro exchange rate be in ten years, or will there even be a euro?

I mean, all these questions exist inside models that are currently reviewed. And while the systems I’m speaking about are quite complex and there aren’t traded instruments based on them, I still think we can make real progress, and over time, get better data, better scenario analyses, better risk sensitivity analyses, to come up with more precise estimates.

BRINK: This is not just a Western issue in developing world countries. Presumably, this is also an issue for Asian companies as they move into the West.

Professor Henisz: This is a very common experience for multinational corporations as they go abroad. They face what’s called the liability of foreignness. They don’t know the local culture, the local context, the local beliefs, the local issues, and they stumble.

They may have a better technology, a better product, a better service, but they often struggle to make it fit locally, and they have to engage in this kind of political social outreach. That’s true of Western multinationals going abroad as well as, more recently, Chinese and other emerging market firms investing in the West.

But I think it’s also true now, you know, in your home country market. You can be blindsided by environmental and social risk or community protests for actions you or your suppliers took at home or abroad. Firms need to understand these risks, the business case for engaging stakeholders on these issues and their fiduciary and social responsibility to do so.

This interview has been edited and condensed for clarity.


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