The Sentencing of Rajat Gupta: Why It Matters Pfizer Chooses Its Battles Wisely Just Say No? Canada’s Rona Does Your Company Has Social Media Nailed. Now What? www.levick.com/insights

1. EDITION 3
Weekly August 10, 2012
The Sentencing of Rajat Gupta:
Why It Matters
Pfizer Chooses Its Battles Wisely
Just Say No? Canada’s Rona Does
Your Company Has Social Media
Nailed. Now What?
2119131536/shutterstock.com

2. The Sentencing of Rajat Gupta:
WHY IT MATTERS Twenty-five years later, we have hedge fund substantive issues that speak to public percep-
Here’s a quaint news item from 1987 about how
bigwig Raj Rajaratnam setting a new record tion as well as the narrower considerations
a certain Ivan F. Boesky, one of the world’s most as he serves an 11-year sentence for similar that drive judges, influence the future actions
misdeeds. of enforcement officials, and impact markets.
powerful speculators and symbol de jour of Wall
Maybe the lesson is that you’re better off get- Nor is the dynamic by any means simple; there
Street greed, was sentenced to three years in prison ting caught committing financial crimes in are conflicting sentiments at play that touch
for insider trading-related violations. It was one of prosperous times. Maybe it’s that persistent on some of our deepest-seated cultural predi-
violations over decades wear down public lections. Based just on what we heard from
the longest jail terms ever imposed in such a case patience, accelerating demand for ever more the jurors after the trial, it does indeed seem
and, apparently, a source of satisfaction to then—U.S. severe punishments that, it’s fancied, will bet- clear that Mr. Gupta inspires more complex
ter deter future wrongdoers. feeling than has ever been true of a Wall Street
Attorney Rudolph Giuliani. defendant.
In any event, the conviction of Rajat Gupta for
leaking insider information to Rajaratnam has First, the jury…
Richard S. Levick, Esq. naturally generated much discussion about how
Originally Published on Forbes.com
Mr. Gupta’s peers spent less than two days—
the retired head of McKinsey & Company and
under 10 hours, by some accounts—to reach
former Goldman Sachs board member will fare
its verdict. By contrast, the jury took over
when Judge Jed Rakoff of the Federal District
two weeks to convict Rajaratnam, despite the
Court in Manhattan passes sentence in October.
fact that Rajaratnam was found to have prof-
(Gupta was convicted on one count of conspira-
ited financially from his crimes, which Gupta
cy and three counts of securities fraud.)
did not.
Yet the discussion is more than just an odds-
Moreover, the evidence against Gupta was
maker’s game. Gupta’s ultimate fate raises
almost all circumstantial. True, it was over-
Farsh/shutterstock.com

3. Weekly
whelmingly circumstantial, yet such a fast Gupta to the stand, and play on those sympa- Rakoff’s impatience with the sentencing guide- lished take-away for businesses, to build up
verdict is still noteworthy absent a smoking thies even harder, is rather interesting.) lines—he has called them “the mirage of some- reputational equity against the day when they
gun. The prosecutors relied on phone and thing that can be obtained with arithmetic may face trial in a court or law or the Court of
Closely related to the issue of sympathy is
transaction records without need of the wire- certainty”—and a proven tendency to impose Public Opinion.
the issue of motive. Gary Naftalis, Gupta’s
taps that were decisive in Rajaratnam’s case. lesser sentences.
superstar lawyer, argued that a 63 year-old More significant in this case is Rakoff’s assess-
The practicability of circumstantial evidence in
man would not risk everything for money he It would seem as if Gupta has further reason to ment of how his own decision will affect the
such cases was thus strategically validated and,
neither made nor needed. Post-trial comments be optimistic as the federal sentencing guide- marketplace; as former federal judge Richard
believe some observers, will only inspire the
suggest that jurors felt Gupta was manipulated lines do differentiate between those who profit Holwell, who sentenced Rajaratnam to 11
government to be more aggressive in
by Rajaratnam. from insider trading and those who don’t. On years, puts it, the extent to which he thinks it
the future.
the other hand, the prosecution will likely ar- will “give a strong warning to portfolio manag-
Rajat Gupta an unwitting dupe? That seems a
One might conclude that Gupta must have gue that Gupta is responsible for all the trading ers on Wall Street.”
gross underestimation of a man who’s cir-
been a most unsympathetic defendant whose cited in the indictment (an aggregate $16 mil-
cumnavigated the financial markets as ably as No doubt, the very fact that someone of
position (and personality) made it easier for lion in profit for Rajaratnam’s Galleon Group),
anyone in recent history. Gupta’s stature will go to jail sends a welcome
the jury to reach their conclusion. In fact, the and that he likewise “abused a position of
message, not just to those managers but to
opposite is true. The jury convicted someone Here the jurors may have missed the compel- trust.” As such, Gupta could be looking at eight
investors who still pine for a marketplace not
they actually found very sympathetic, and yet ling tie that bound Gupta to Rajaratnam but, to 10 years, according to the guidelines.
gamed by a handful of insiders.
they did so in a fraction of the time it took to if so, it’s not the jurors’ fault. They just don’t
Yet prosecutors won’t want the judge to per-
find his more flamboyant and purportedly happen to live and work in a world like Wall But the best argument for a relatively stiff sen-
ceive them as vindictive as Rakoff has a history
greedier cohort guilty as charged. Street where favors are done and relation- tence takes us back to that issue of motive by
of bristling at that. For example, in sentencing
ships cultivated at any cost; where informal which Gupta supporters would seek to at least
Gupta did not arouse sympathy simply because lawyer Marc Dreier to 20 years for his notori-
conversations slip into illegality with amazing partially excuse him. To the contrary, Gupta’s
he has a pleasant personality. Importantly, his ous Ponzi scheme, Rakoff summarily rejected
nonchalance; where secrets are traded like motive ought to work against him. The very
career embodies values that Americans hold the government’s request for 145 years. Last
marbles; where insider trading is, as Gupta’s fact that he was driven by those “intangible
highest. He was an orphan. He went to Har- September, he gave Winifrid Jiau, convicted of
prosecutor, U.S. Attorney Preet Bahara put it, a benefits,” rather than money, proves that Wall
vard Business School on a scholarship. He rose selling confidential information, less than half
“performance-enhancing drug.” Street’s culture itself, and its whole mélange
to dizzying heights. The jury foreman called it the 10 years recommended by the government.
of winks and nods, faces sentencing on
a “storybook life.” It’s called “intangible benefits.” Because he
Law professor Peter Henning thinks Gupta October 16.
sought and savored those benefits so avidly,
“We were hoping he would walk out of this will do even a little bit better than Jiau; he
Rajat Gupta, for all his virtues, must do time. Judge Rakoff knows that culture very well.
courthouse,” said another juror. Apparently, anticipates three years as the likely outcome.
The question is, how much time?—which Perhaps he also knows that, if we don’t com-
though, the jurors voted their heads, not their There will be some irony in that if, after three
brings us to October 16, 2012 when Judge Ra- pel the heedless behavior it encourages to
hearts—no small feat when the defendant per- decades and so much accelerated demand for
koff will decide that very question. change, then we’ve achieved very little since
sonifies everything you believe in. Some jurors harsher deterrence, Gupta winds up serving
1987 when a mere three years for Boesky was
were crying when the verdict was read. (In this Here too complex issues are at play, including the exact term as Ivan Boesky.
deemed by some to be draconian. L
context, the decision by the defense not to call the extent to which the judge may be affected
Henning observes that Gupta has a significant
by, or at least in synch with, the palpable Richard S. Levick, Esq., President and CEO of LEVICK,
history of charitable giving, which “seems to be represents countries and companies in the highest-stakes
sympathies of the jury. In Gupta’s favor, add
persuasive to judges.” It’s no doubt an estab- global communications matters — from the Wall Street
crisis and the Gulf oil spill to Guantanamo Bay and the
Catholic Church.

4. Pfizer Chooses
Its Battles Earlier this month, Pfizer Consumer Healthcare
announced that it had agreed to activist de-
rumors swirling that the company may spin
off its consumer business before long, Pfizer
Wisely
mands that its Centrum brand amend its mar- has every reason to want to take off the table
keting practices. With the prospect of a lawsuit any lingering issues that could make the unit
from the Center for Science in the Public Inter- less attractive to potential suitors.
est (CSPI) looming, the company agreed to
Second, by voluntarily agreeing to change its
discontinue claims that some Centrum prod-
practices Pfizer took the regulators out of the
David Bartlett ucts promote “colon health” and “breast
Originally Published on LEVICK Daily game. The U.S. Food and Drug Administration
health.” The company also agreed to qualify
(FDA) doesn’t have the sharpest teeth when it
statements made on the Web and in traditional
comes to product labeling in the supplements
advertising that certain supplements contrib-
market. Why give the Agency any incentive
ute to “heart health.” All of the changes, includ-
to get involved? Right now, regulatory agen-
ing revised product labeling, will be in effect by
cies are feeling emboldened. They are eager to
January 5, 2013.
show activist supporters that they will go after
The agreement represents one of those rare big business on even the shakiest pretext. That
instances in which a major corporation—they kind of scrutiny is one factor that could lead
don’t get any bigger than Pfizer in the pharma- potential acquirers of Pfizer’s consumer unit to
ceutical industry—quickly backs down in the offer a lower price.
face of activist pressure. Some may wonder
And third, Pfizer has avoided a fight that
why Pfizer would make such a move. But don’t
would not have been worth winning. If
fault the company for capitulating just yet.
you’re big company facing an issue like this,
There are least three good reasons why Pfizer’s
and the product involved does not represent
decision made sense under the circumstances.
a large percentage of your business, your
First, Pfizer put the issue in the rear view mir- overall interests are probably better served by
ror without much negative attention. And the flight than fight. Save your reputational and
company probably earned a few points with political capital for more important battles
the consumer crusader crowd at the same time. sure to come in an aggressive legal and regula-
At the very least, it took a potentially trouble- tory environment. L
some weapon away from its antagonists. With
David Bartlett is a Senior Vice President at LEVICK and a
contributing author to Levick Daily.
monticello/shutterstock.com

5. Just Say No?
Canada’s Rona Does
Rejecting an unsolicited bid by U.S. home
improvement retailer Lowe’s, Canadian
competitor Rona Inc. said that its board had
determined the proposal wasn’t in the best
interests of its shareholders.
Kathleen Wailes
Originally Published on Seekingalpha.com
I. Pilon/shutterstock.com

6. Weekly
“ This contest is a perfect example of the battle between
investor desire for a short-term catalyst and corporate
management’s desire to build long-term shareholder
value and maintain its independence.”
As Jerry Seinfeld always said, “Really?” The takeovers using the Investment Canada Act,
stock price says this story isn’t over. This just as the U.S. government has the power to do
contest is a perfect example of the battle be- in the case of U.S. interests. Coming September
tween investor desire for a short-term catalyst elections could result in a change of regime in
and corporate management’s desire to build Canada, in turn reversing potential opposition.
long-term shareholder value and maintain its
According to The Wall Street Journal, the CEOs
independence. 06photo/shutterstock.com
of the two companies met last summer at
The bid of $14.50 valued RON at C$1.76 billion, Rona’s request, which was followed by Lowe’s
representing a premium of about 22% over first offer in December. That offer was rejected
A hostile deal clearly will not succeed, so if success. Conversely, any company that wants
Monday’s close and was 37% of the price ahead by the board. Despite today’s latest rejection,
Lowe’s wants to prevail, it likely must increase to escape a foreign acquirer can marshal these
of the offer. RON has traded in a 52-week range Lowe’s clearly hasn’t given up. Is it just a mat-
its offer, gain the support of the Rona board, forces to create a virtual poison pill.
of C$8.64 to C$11.92. ter of price, and can a higher offer succeed?
then get the Rona board to gain governmental
Lowe’s can still win this fight, but it first must
The Quebec provincial government also stated Certainly, Rona’s institutional shareholders support. With a highly motivated buyer, that
win over Rona management. Investors also can
today that a takeover of Rona is not in the might welcome the opportunity to cash in. may well happen. In the meantime, Lowe’s
hope for a competing offer that might be more
province or Canada’s interest, which will make Lowe’s asserts that shareholders representing credit was put on a credit watch with a nega-
acceptable both to the company and to Cana-
it very difficult for a higher offer to succeed 15% of Rona’s shares support its offer for the tive outlook by S&P, although S&P acknowl-
dian constituencies, or for a revised corporate
unless Quebec relents. The Quebec finance company. Lowe’s further states that it plans to edged that the potential acquisition might be
strategy involving greater speed and upside
minister indicated that his government will leave Rona’s Canadian operations alone, main- additive to Lowe’s operations. Lowe’s stock
potential. While that’s running its course, this
support Rona management in a takeover fight. taining its headquarters in Quebec and its cur- took some pain today as a result.
is a play for momentum investors willing to
In addition, a foreign acquisition of Rona must rent mix of stores. Lowe’s has to overcome the
Any acquirer must take into account institu- take the risk that the deal will never happen. L
be cleared by the federal government, which issue of Canada’s desire to maintain its inde-
tional attitudes toward a potential transaction.
Disclosure: I have no positions in any stocks mentioned, and
last year blocked the high-profile, $40 billion pendent business base, persuade the Canadian
Laying the proper groundwork with regula- no plans to initiate any positions within the next 72 hours.
attempt by Australian BHP Billiton (BHP) to public that jobs and investments won’t decline,
tory authorities, governmental bodies, union
acquire Canadian company Potash Corp (POT). and overcome management’s desire to remain Kathleen Wailes, Senior Vice President & Chair, Financial
officials and local opinion leaders is central to
Communications Practice
The federal government in Canada can block in place and pursue its own business plan.

7. Your Company Has 83163073/shutterstock.com
Social Media Nailed. Benchmarks are met. Milestones are reached. organization control its narrative when it
Now What?
Pats on the back abound. But now what? Smart matters most. In the digital age, you don’t
executives know that contentment can devolve have to wait to defend specific positions when
into complacency in a flash—and that it’s up business crises materialize. Rather, you can
to managers to ensure that their people are proactively identify risks and dominate the
continually motivated to meet new challenges. web with branding messages in a positive,
To that end, here are five questions to ask the non-defensive way. For a pipeline operator,
Right about now, your digital team is feeling pretty next time you are presented with even the it’s about safety and reducing environmental
most glowing digital engagement report. Not impacts. For a consumer-products company,
darn good about itself. It’s amassed a strong social only will they keep your digital team on its it’s about supply-chain diligence and consumer
media following for your organization. Enter your toes, they will take your engagement strategies well-being. For a bank, it’s about being an
to new heights. economic engine and a driver of economic re-
company’s name on Google, and your website is the covery. The most important point is that search
When your digital team says: “We own top
engine campaigns that move these messages to
top result. You’ve got a blog, and people are actually placement on Google for searches on our
the top of the rankings include risk terms such
organization…”
reading it. Your monitoring capabilities ensure that as “explosion,” “mortgage abuse,” “recall,” or
Ask them: “Who owns top placement for nega- “litigation”—as these are the terms consumers,
you’re alerted the moment anyone mentions your tive terms we may be associated with?” investors, regulators, and potential plaintiffs
company or its leadership in the digital space. Search engine optimization (SEO) and market-
will be using to gain a better understanding of
your next big problem.
ing (SEM) are about more than advertising-
Richard S. Levick, Esq. -they are risk functions that can help your
Originally Published on Fastcompany.com
violetkaipa/shutterstock.com

8. Weekly
“
When your digital team says: “We are ac- and build positive working relationships with
tively monitoring for any mentions of our them. That means reaching out directly—with
company in the digital space…” offers for exclusive interviews, invitations to
Your digital team knows Information Age tactics
conference and earnings calls, and even al-
Ask them: “Are we monitoring for intelligence
lowing them to craft guest posts for your own
backwards and forwards--but they are looking to
about tomorrow’s issues, as well as today’s?”
blog. It also means that blogger queries should you to provide the strategic vision that their tactics
By entering the terms associated with your be treated with all the reverence normally
ultimately support. ”
top-line risks into search engines, companies reserved for 60 Minutes or The Wall Street
can glean a great deal of intelligence about Journal. The key here is to personally know the
the source of their next reputational, legal, or bloggers who influence your audience before
regulatory problem. In other words, they can you need them, so that they can be enlisted to products based on the recipient’s demographic half that time to grab visitors’ attention and
see around corners. Do regulators, NGOs, or understand company messages when it mat- information. These strategies (and myriad ensure that click steers them further into your
plaintiffs’ firms own the marquee results? If ters most. others like them) leverage social media connec- own website.
so, what are they saying about the risks and tions to not just create awareness, but engage-
When your digital team says: “We just Your digital team knows Information Age
your industry’s relationship to them? Know- ment opportunities that strengthen the audi-
reached our goals for Facebook fans and tactics backwards and forwards—but they are
ing what’s coming next enables companies to ence’s ties to the brand. At the end of the day,
Twitter followers…” looking to you to provide the strategic vision
address potential problems before they evolve that’s what social media is really all about.
that their tactics ultimately support. By push-
into recalls, litigation, shareholder revolts, or Ask them: “What are we doing to transform
When your digital team says: “We are at- ing your digital team to take on new challenges
something worse. As such, this needs to be those connections into lasting brand loyalty?”
tracting more unique visitors to our website each time benchmarks are reached, you will
a daily exercise—and a report on the results
Amassing hundreds of thousands of social than ever before…” not only keep them motivated, you will keep
should be submitted to communications and
media fans and followers is about more than them keenly aware of the overall mission their
risk managers each week. Ask them: “What are we doing to keep them
erecting a symbol of brand strength; it’s about work supports. L
engaged once they arrive?”
When your digital team says: “Our blog strengthening consumer and stakeholder rela-
Richard S. Levick, Esq., President and CEO of LEVICK,
doubled its readership over the last year…” tionships. In this context, social media strategy There was a time when the Internet was represents countries and companies in the highest-stakes
is far more than a numbers game. Rather, it is dominated by the written word. Those days global communications matters — from the Wall Street
Ask them: “What are we doing to build rela-
the most effective way to forge lasting connec- are over. Today, powerful images, engaging crisis and the Gulf oil spill to Guantanamo Bay and the
tionships with other influential bloggers in our Catholic Church.
tions based on the ways that your products and videos, and informative podcasts are what
industry?”
services enrich and empower people’s lives. keep web users’ eyes from glazing over when
Bloggers have evolved into the traditional Look at the way American Express is reward- they reach your primary web presence. Why
media’s assignment editors. They serve as ing cardholders who tweet company hashtags tell stakeholders about new product features,
pollsters for legislators, regulators, and other with special discounts and savings; or the way your commitment to safety, or a new Corporate
governmental bodies. Industry analysts moni- Huggies, with its “High Chair Critics” blog, is Social Responsibility initiative when you can
tor their reports like hawks. That’s why it is ab- speaking directly to mothers via babies’ voices; show them? The average visitor to your homep-
solutely essential that every company identify or the way Target is simplifying gift-giving with age likely spends about 30 seconds there before
the “high authority” bloggers in their industry a mobile app that sorts and highlights certain clicking elsewhere. That means you have about

9. THE URGENCY
OF NOW.