Cooperation Can Easily Bribe the SEC: Guest Post by Lindsey Craig

The SEC is an organization with limited funds and resources when it comes to enforcing the various acts they have put in place. When it comes to the smaller acts, such as the Foreign Corrupt Practices Act (FCPA), most of these offenses take place overseas and to gather witness and evidence can be quite costly. In the case of the Ralph Lauren Corporation they earned the first non-prosecution agreement for a FCPA case because of their cooperation with the SEC on their recent violation.

The Ralph Lauren Corporation was doing an internal audit of the company with compliance programming when they discovered discrepancies in their cash flows. The head of their Argentina subsidiary supplied the bribes by writing things as “loading and delivery expenses” and “stamp tax/ label tax”. The Ralph Lauren Corporation paid a total of $593,000 in bribes to Argentine officials. These were paid off in handbags, perfume and clothing. These bribes were effective in allowing the corporation to pass illegal merchandise through customs. Check out this Bloomberg for a great explanation. (http://www.bloomberg.com/video/ralph-lauren-corp-fined-in-argentine-bribery-case-m78X0JF6Qq67QbvhLXSYOQ.html )

During the discussion on what the SEC was going to do about the violation, the stop price dropped to its lowest price in months, down to $165.66, and then when the SEC offered to give Ralph Lauren the non-prosecution agreement the stockclimbed over $11. Because the SEC was lenient on the corporation their stock and investors avoided any harm. 

According to the NY Times, (http://dealbook.nytimes.com/2013/04/29/ralph-lauren-case-shows-the-benefits-of-cooperation/ ) the small settlement of $700,000 by Ralph Lauren to the SEC is a small price to pay for the transgression. The corporation did go above and beyond when trying to help the SEC in the investigation. Not only did they report themselves, they also:

—  Reported preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts.

—  Voluntarily and expeditiously produced documents.

—  Provided English language translations of documents to the staff.

—  Summarized witness interviews that the company’s investigators conducted overseas.

—  Made overseas witnesses available for staff interviews and brought witnesses to the United States

The penalty could have been much worse from the SEC and DOJ if they hadn’t cooperated, and the SEC hopes to use this as a template for other companies who violate the FCPA. They used the Ralph Lauren Corporation as a guinea pig to show future violators just how beneficial it can be to provide them with help. The SEC allowing cooperation to change the way they think about punishment is helpful for them with the amount of resources they no longer have to expend, but it is almost a form of bribery to these companies to help do the work and you will have to pay less.

It may be considered a trade-off, since the companies are paying what the SEC would be anyway. Yet, the SEC took a NPA instead of filing a larger claim and actually taking action. By the SEC taking the NPA approach it also helped the stock price of the company rebound at a faster rate, further encouraging companies to turn themselves in and being an unforeseen benefit of cooperation. The SEC is here to regulate industry in a productive manner, but we’ll see how their ruling on the Ralph Lauren case changes the future of the FCPA. 

The role of social responsibility in investor relations: Guest Post by Kristen Eklund

Social responsibility has a heavy weight in the investment field. Both ethical and moral views are put on the forefront when investing in a company. They are weighed by the stakeholders as well as companies. Social responsibilities could potentially make or break a company and their shareholders. Social responsibility investing represents the ethical and core beliefs of a company and its publics.  With the ability to withhold funds from a company  the shareholders are able to restrict business with that company and limit there ability to run effectively. In conclusion a company's share price may be negatively affected if these unethical behaviors are being carried out. This leads the company to take in to consideration the core values of their company and publics.

Nike has been at the forefront of social responsibility scandals. Being one of the leading brands in the world in 1992, Nike was accused of disregarding social responsibilities within their factories throughout the world. The first case came up in a 1992 edition of Harpers magazine. A young Indonesian worker named Sadisah was questioned about the conditions of the Nike working factories. Sadisah was working 6 days a week for 10 hours a day. Her wage was for 14 cents and hour. With a company being owned by the sixth richest man in the world, stakeholders and customers were outraged by the working regulations. After exposing the company, Nike had began to receive negative publicity. This scandal spanned out for the course of five years. Protests against the company had begun, and Nike retail stores were suffering immensely. Groups were formed to protest against the slave like conditions, while many sports teams pulled their sponsorship deals with the company.

ESPN covered as story about St. Johns University that withheld their 3.5 million dollar sponsorship deal with Nike. Jim Keady an assistant soccer coach at the University refused to wear the Nike product and in return the company suffered. Slave wages, abuse, and neglect were just some of the terms used to describe the market leading brand.  With dominating the market for so long, Nike was under severe criticism and needed to implement crisis control tactics. The report includes a section regarding workers and factories. This section provides information about how the company reaches out to the workers and how they regulate what is now going on in the factories. Given by a third party survey the employee satisfaction survey was administered to workers in 24 factories in China and Vietnam. The survey was composed of questions regarding: training and development, living conditions, working conditions, work hours, compensation and supervision. The company also implemented a 6 point plan which would help Nike monitor conditions while raise minimum wages and work requirements. Following this, Nike also set up a CSR department which communicated directly with Phil Knight along with publics which heavily criticized the company.

Over the years, Nike has attempted to slowly rebuild its reputation. In order to continue, Nike must be able to communicate to the public and its stakeholders their ethical responsibilities. Nike reported in 2005 that they have been working with factories to builds their human resources skill san improve the environment. Since the ongoing scandals that erupted in 1992, Nike has still continued to emerge as a company that suppresses its factory workers. Articles  continue to emerge about Nikes treatment of workers in factories across the world . A recent article in 2011 stated that workers in Nike factories were physically and verbally abused.


In terms of future development, the company must continue to work with factories throughout the world. Nike must directly monitor these factories in order to ensure they are running safely. Nike must be able to communicate their efforts to their stakeholders as well as customers in order to rebuild a relationship. They must gain trust back from these publics in order for them to invest in the company.

It is evident that the Nike controversy has continued to drag on. Being one of the market leaders Nike continues to be a powerhouse. It is evident that there main goal is to gain a profit from their customers regardless of the negative publicity. In order to gain a positive reputation, the company must be able to directly oversee workers and factory conditions. Nike must import jobs back to the United States to ensure that the company is able to oversee the production rather than shipping jobs over to a third party. Though this could potentially affect the company? profit, it will positively affect their image and the shareholders trust with the company. It is the concept of weighing ethical values against profit.

Investor Relations: The U.S. Economy’s Influence on Global Investors: Guest Post by Kerry Healy

The U.S. economy’s success and struggles impact global investors. Jeffrey Morgan, CEO of the National Investor Relations Institute (NIRI), explained during a Skype call with my investor relations class, global investors will take into account what is going on in the United States, whether it be a political issue or economical issue, they look at America’s market when discussing businesses and stocks. Although international investors do look towards the US economy, they do not always need to react. 

Morgan made it clear that all global economies interact differently whether they are currently in recovery, a healthy state, or on a downfall, no economy is the same. Because of the differences in current activity, global investors may not always be influenced by what is going on in the United States.

Although America might not be as large as an influence as we may think it is, global investors were concerned during the last six months because of the state of the economy. One of the main struggles America faced recently was the fiscal cliff threat. Despite this being an American issue, global investors faced problems and had their own concerns with this money matter. According to a survey by Bank of America Merril Lynch 42% of global investors said the fiscal cliff was the “tail risk” for investors.

SeekingAlpha.com defines tail risks as “…strategies are essentially designed to perform well in the worst of market conditions. They act as insurance policies, requiring investors to pay in to a losing strategy until something bad happens. Tail-risk hedges are said to be most effective in environments where market participants see declines of at least 20%, providing much needed liquidity while the rest of their portfolio is spiraling toward the bottom.”

Although a tail risk is a very unlikely problem, investors still looked towards the US economy’s downfall as a hurdle, and tail risks can present problems if the hedge fund goes wrong.

“America’s influence over the global economy is still overwhelming,” said Mike Lenhoff, the chief strategist at Brewin Dolphin in London. Not only is America the leader in the world’s stock market capitalization with about 32.7%, (shown in the graph), but America is also the leader in the world’s equity market according to BeSpoke Group.

America is still leading the world in market capitalizations, and because of this, the United States will continue to have some type of an influence on surrounding countries and their global investors as we continue into the future. 

Corporate Social Responsibility Issues in Investor Communications

In the earlier post about my presentation at the Academy of Management conference in Montreal, Canada, I talked about the fact that the issue of corporate social responsibility occupies a very minor place in communications between investors and investor relations officers. In fact, IROs rate such information as the least important for investors and the least important for properly understanding the company’s business. But are they correct? Do investors and financial analysts really not care about CSR?

Ernst & Young tried to find an answer to this question by conducting a study called Measures That Matter. In the study Ernst & Young analyzed sell-side reports, conducted a survey of buy-side, and even performed an experiment with different financial scenarios. The result: corporate environmental and social policies were ranked number 37 out of total 39 categories by the investors and financial analysts labeling this category among the least important.

On one hand, it means that IROs do in fact know what investors want (or do not want in this case). On the other hand, it means nobody cares about corporate social responsibility despite all this noise about CSR in the media!

Now, I should mention that Ernst & Young study dates back to 1997. A lot changed since then: from new regulations to new environmental and social disasters. It would be quite interesting to do an update to the study and measure what is happening in the industry now. However, when I contacted CFA Institute to request permission to survey their members financial analysts, they declined; when I contacted Security Traders Association to request permission to survey their members representing buy-side, they also declined. I do not know how Ernst & Young did it!

One of the changes I would expect to find is the appearance of people at buy-side and sell-side who specifically target so-called green investments. Information about CSR may not still be important for your regular financial analyst (unless somebody is suing you for a CSR issue!), but the same sell-side firm might employ a financial analysts who specializes in CSR investments and that analyst might be writing a different report for different investment audiences about your company as well.

Another article published! This time about investor relations.

I just reported having an article published in an academic peer-review journal, Journal of Communication Management, and now I got another peer-reviewed article published.

The article, A Descriptive Account of the Investor Relations Profession, is published in the Journal of Business Communication, the leading journal of the Association for Business Communication.

The article reports on the survey of investor relations officers from Fortune-500 companies. The study asked about their day-to-day investor relations activities and their perception of investor relations as a profession. Later I will share some key findings from the article, but the full text of the article is also available here: http://job.sagepub.com/cgi/content/abstract/46/2/208

Now I can enjoy my summer months and some international travel. First stop: Moscow, Russia.

Middle East goes for IR...

I was happy to see the news in early July that Middle East Investor Relations Society was established. So far the Web site is empty - there is nothing there except for the welcome message and the mission statement of ME-IRS.

I talked with a few IR practitioners from the region and it puzzles me that most of them draw support from Britain's Investor Relations Society rather than from the U.S.'s National Investor Relations Institute. They go to IR Society's events, receive IR Society's certificate, and look to IR Society for help when needed. I wonder why is that? Is it simply because Britain is closer than the United States? Is it because they want to list their companies on LSE or Deutsche Borse? Or is it because IR Society is better in its international outreach programs than NIRI?

In any case, best of luck to ME-IRS! Investor relations is still a very young profession even in the United States and Great Britain; internationally, it's just in its earliest stages.

Putin as a New York Times columnist...

Putin will be writing a weekly op-ed for The New York Times!!! It is amazing. Russian President agreed to do some western-bound public relations.

There is no doubt he himself won't actually write any of these articles - I seriously doubt he will even read them. But I am surprised the PR agency that works for the Kremlin now (anybody knows what agency that might be? :) ) managed to persuade the Kremlin to let them do it.

I especially like the way NYT explains why they have chosen Putin:

QUOTE. Look, Hitler and Stalin are dead. Pol Pot, too. Osama bin Laden tends toward the run-on sentence. Sudanese President Omar al-Bashir has trouble meeting deadlines. Musharraf told us he has too much on his plate right now to commit. Charles Manson's parole board has repeatedly declined our requests for Chuck to pen a column for us while serving out his life sentence. Dick Cheney can't write a sentence without dropping an F-bomb. And, well, let's just say all options were off the table concerning President Bush. END QUOTE.

I got the story from Accountbility Central. I could not find anything on the NYT Web site about it, however....