Are You Ready For Your Viral Moment, The Referendum Confusion, And Punting On Politics

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Here’s What You Need To Know

Instead of a reflective and relaxing weekend celebrating the legacy of Dr. Martin Luther King, Jr., many Americans found themselves wading into the debate surrounding the interaction between red MAGA-hat wearing high school students and a Native American elder just steps from where Dr. King gave his famous “I Have A Dream” speech in front of the Lincoln Memorial 90 years ago. The resulting mayhem has become the norm in today’s age of heightened political and reputational risk, where a viral moment on social media spurs a viral narrative that devolves into outrage, accusations, clarifications, and threats – with little or no regard for the truth, and before all of the facts are clear.

This episode presents an opportunity for companies and cause organizations to evaluate (or reevaluate) their preparations to defend against the repercussions of an inevitable viral moment targeting them, because once a story is out in the public arena, the costs of managing and mitigating the reputational fallout only increase. Here is how your organization can prepare for its viral moment:

  • Understand The Range of Interests And Stakeholders In Your Operating Landscape: Heightened political and reputational risk means that companies and cause organizations need to think through potential challenges they face, as well as where such challenges could originate from. Understanding the range of interests and stakeholders in one’s operating landscape, including their concerns, motivations, and tactics, can provide insight into where opponents and activists may engage an organization on an issue in the public arena, thereby providing space to address any concerns before they lead to public actions like protests and boycotts. It can also help an organization avoid making decisions that undermine its support among core constituencies, particularly at a time when consumers want to support organizations that align with their beliefs. In addition, because viral moments may come from unpredictable and unforeseen events, an understanding of your organization’s network of interests and stakeholders can help solidify support among different partners, build broad coalitions, and shift the public debate into a stronger position during a public affairs challenge, helping mitigate negative consequences that may otherwise stem from it.
     
  • Know Your Vulnerabilities, And How To Compensate For Them: Once reserved for political candidates running for office, vetting vulnerabilities has become an important tool for organizations to evaluate individuals, from major league baseball to the corporate boardroom. It is also a critical tool to evaluate an organization itself, allowing it to assess flaws, vulnerabilities, and negative coverage it may be susceptible to in the public arena, that competitors, activists, and other opponents may use against it to ignite a viral moment. Knowing your company or cause organization’s vulnerabilities, and proactively preparing the full set of facts to respond to those who may obfuscate the truth or only present a part of the story that your opponents want to feature, helps ensure you can control as much as possible in a fast-moving and challenging situation.
     
  • Tell Your Story, Before You’re In A Fight: Once an organization understands the network engaged on its issues and its vulnerabilities, it can build a proactive public affairs strategy to tell its story. Sharing a compelling narrative about your organization, supported by the facts and insights that you want to share, defines your organization’s brand and can build goodwill in the public arena. When a viral moment occurs, these efforts can mean a company receiving the benefit of the doubt in a crisis from a public familiar with its story, making it more difficult for that viral moment to lead to lasting reputational damage.
     
  • Have A Plan: While even the best-laid plans go out the window once a crisis begins, having a plan to mitigate heightened risk remains key to minimizing the impacts of a viral moment. The above components are all parts of a successful public affairs strategy, and with the addition of a monitoring regimen that helps an organization keep apprised of key developments, changes in the state of play, and better see around the corner to anticipate and respond to events as they occur, these facets of reputational management are the hallmarks of protecting your interests and achieving your objectives in an age of viral moments – especially so when the media landscape amplifies and further obscures such moments in real time.

The incident on the steps of the Lincoln Memorial is simply the latest in a quickening pace of viral moments that companies and cause organizations will inevitably find themselves the targets of. Preparing now – before events transpire that are outside of your control –  improves the likelihood that your organization can weather the challenge when it happens with a sound, substantive strategy to protect itself in the public arena, because when the stakes are the highest, facts matter more than hot takes.

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AN UNLIKE(LY) REQUEST

If there’s one thing social media needs more of, it’s politics; at least Facebook seems to think so. The company just launched a new feature enabling users to create political petitions, share them among friends, and notify a government agency for action.

As TechCrunch points out, not only will these Community Actions allow individual users to sow polarization with outlandish or offensive causes, but they also “provide vocal interest groups a bully pulpit from which to pressure politicians and bureaucrats with their fringe agendas.” Essentially, Facebook has supercharged the political side of Change.org.

Today’s anti-corporate activists are professional and well-organized. Giving them the leverage of the world’s largest social media outlet is unlikely to leave Facebook and other tech companies unscathed and may even hasten this outcome by providing an avenue for increased anti-tech activism. Any business exposed to regulatory or reputational risk should keep an eye on this new feature and any copycats it may inspire in Facebook’s competitors, including (God help us) Twitter.

THE REFERENDUM CONFUSION

The lessons of the November 2018 midterm elections might appear obvious at first glance: red states kicked out blue Senators, swing districts swung to the Democrats and delivered the House, the polarization of the American electorate continued apace. Yet, behind the headlines and under the radar, a subtler trend unfolded: liberal voters directly enacted conservative policies and vice versa.

Through the use of ballot measures, advocacy groups took their proposals straight to the people, unencumbered by party loyalties or candidate weaknesses. As conservative voters in Missouri were unseating Democratic Sen. Claire McCaskill, they were also approving legalized marijuana and raising the minimum wage. Jay Inslee, Democratic governor of Washington, saw his dream of the nation’s first carbon tax crushed by a 13-point margin.

While voters tend to use partisan and personal affiliations to choose between candidates, policy questions are apparently judged by different criteria. The trend presents both opportunities and challenges for businesses hoping to anticipate the policy and political environment in which they must engage, requiring a concerted effort to dig deeper to better understand the spectrum of interests and stakeholders engaged on the issues important to them.

A MATTER OF TRUSTS 

Antitrust policy took center stage at the confirmation hearings of Attorney General nominee Bill Barr, specifically in relation to Big Tech. Several senators spent long stretches of their allotted time asking Barr, who fought the Justice Department’s attempt to block the merger of AT&T and Time Warner in 2018, about the potential for government action against the giants of Silicon Valley. Jeff Sessions, conversely, was asked only twice about antitrust matters during his Attorney General confirmation hearings in 2017.

Lawmakers’ sudden interest in the issue as it applies to tech companies seems ominous, especially in light of growing popular distrust of the industry. For his part, Barr said, “I don’t think big is necessarily bad, but I think a lot of people wonder how such huge behemoths that now exist in Silicon Valley have taken shape under the nose of the antitrust enforcers.” If confirmed, the incoming Attorney General’s handling of this waxing political issue could set the tone for his tenure and have serious regulatory ramifications across all industries.

PUNTING ON POLITICS

The Super Bowl’s cultural appeal rests only partially on football these days. Excepting New England fans, most Americans usually don’t get to support their home team in the NFL’s climactic finale and prefer to tune in for the drama of it all or the halftime show or, famously, the commercials. Now a new Morning Consult poll is putting advertisers on notice: political messages are out of bounds.

Nearly two-thirds of respondents, including 55 percent of all millennials polled, disapproved of using Super Bowl advertisements to make political statements. Morning Consult CEO Michael Ramlet noted, “The biggest disconnect between the general public and agencies and companies is this idea that you have to take stands to win Gen Z or millennials. That’s not what the data shows” most viewers of any age want during the Super Bowl.

Of course, viewers are unlikely to skip the game over a few political commercials and it is still expected to draw television’s biggest crowd. This new data should at least give Madison Avenue pause; while there may be no such thing as bad publicity, woke advertising brings just as many reputational risks as rewards. 

Be Careful What Unicorn Wish For

Be Careful What Unicorn Wish For, Cheezy Lawsuits, and Bursting the Bubble

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Here’s What You Need To Know

The new year has begun, and some of the most valuable private tech companies – including Uber, Lyft, Airbnb, Slack, and other so-called “unicorns” valued at more than $1 billion – are preparing for their initial public offerings (IPOs) in the early part of 2019. Thirty-eight tech and internet companies, the most since the dot-com boom in 2000, took the plunge to go public last year and more are expected to test the market this year, despite the recent market downturn and the overall trend of fewer companies doing so.

These headwinds mean unicorns should be careful about going public, as other sectors appear to have weighed the added political and reputational challenges and decided against it, and 2019 comes with the expectation that the tech industry’s public affairs challenges will begin to have an impact on their bottom line. Here’s what you need to know about minimizing and mitigating these risks as we await this year’s big, newsworthy IPOs:

  1. How Did We Get Here? A strong stock market and cheap capital have allowed private tech companies to incubate and scale in a favorable climate, resulting in their ability to grow into large and valuable unicorns. Investors were patient with these companies as long as the economy continued to expand and interest rates stayed low, which is why some unicorns were putting off their IPOs, even as far out as 2020, hoping to continue growing, gaining value, and avoiding the scrutiny from shareholders, the press, and governments that comes with being a public company.
     
  2. Greater Scrutiny On Executives And Business Practices: Public companies are obligated to publicly disclose lengthy filings that detail their financials and operations, which can garner the attention of the media, analysts, and activist investors (of both the short-selling and political kind). Avoiding this additional scrutiny can be particularly beneficial for disruptive companies challenging the regulatory environment in areas where they operate, as insights into their tactics and business practices could be used against them in the public policy arena by legacy competitors and other opponents, making it all the more important to understand any vulnerabilities before going public.Also, executives of public companies have to answer to a greater number of shareholders and investors, which could lead to additional scrutiny of their professional and personal lives, with anything hinting of impropriety potentially being used as leverage against them and the company.
     
  3. Becoming A Target For Activism: Once public, companies must contend with an increased risk of activism in which current or potential shareholders and investors seek to influence the company’s operations. This could take the form of institutional investors sending governance-related proposals to companies recommending changes in management and compensation, a trend that has grown an average of 11% over the past four years. Additionally, such proposals could be the result of policy-related activism, in which companies are pressured to adopt measures on topics unrelated to their core business and often part of a politically-motivated agenda. Although such proposals have been found to increase a company’s costs and diminish shareholders’ returns, navigating the inevitable attention from such activism requires a strong understanding of a company’s values and business purpose. This can help ensure they align with business decisions, and that unrelated special interest agendas are opposed. Indeed, sometimes the shareholders pushing such agendas own just a few shares expressly for the purpose of pressuring the company on policy matters, or come from institutional investors being pressured by political interests.
     
  4. Time, Money, And Reputation: Taking a private company, let alone a unicorn, public is an expensive and time-intensive endeavor with high-stakes for the company’s reputation and bottom line, and even more so when activist shareholders are waiting to pressure companies. Current corporate governance rules have made it difficult to separate legitimate shareholder concerns about a company’s management and strategy from politically-motivated pressures, not to mention this lack of distinction heightens corporate risk. Both of these factors deter companies from going public – which in turn negatively impacts main street investors as well. While the Securities and Exchange Commission is expected to focus on corporate governance this year, investor pressure on public companies is likely to increase, as well as those pushing environmental, social and governance (ESG) practices that can put political and sustainability goals above business purpose and value, raising the costs of going public in the near-term.

Rather than the “orderly queue” of IPOs predicted in 2019 and 2020, the early part of 2019 may more resemble a stampede – unless, of course, the government remains shutdownand the SEC is not working on new filings. Yet, these unicorns may regret going public if they do not have a thorough understanding of their political and reputational vulnerabilities and the wide range of stakeholders who can influence perceptions about their company’s practices. Such an understanding is vital to ensure the company does not cede the public narrative to others who could damage their reputation – and worse, drive down the company’s value.

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CHEEZY LAWSUITS 

Move over McDonald’s and its hot coffee case, Cheez-Its is going to court. Three women are suing Kellogg’s, the manufacturer of the orange snacks, claiming the company uses “false and misleading marketing” by labeling its crackers as “Made With Whole Grain,” which could trick consumers into thinking they are made with 100% whole grains when they are not.

In early December, the U.S. Court of Appeals for the Second Circuit appeared to agree, ruling that a reasonable consumer could think Cheez-It Whole Grain crackers were made with “predominantly whole grain,” thereby putting the company one step closer to legal discovery and a potential jury trial (!) about the contents of one of America’s most-beloved snacks. The suit demonstrates the extent to which frivolous lawsuits can run amok in an overly litigious society, in which companies can find themselves facing increased legal and reputational risks resulting from such “cheezy” lawsuits.  

“ALEXA, TELL ME ABOUT PRIVACY REGULATIONS”

An Amazon user in Germany recently requested data about his activities on the site and inadvertently gained access to 1,700 audio recordings of a random person he had never met. Following his request, the e-commerce giant sent the user a zip file that contained data related to his Amazon searches but also transcripts of Alexa’s interpretations of voice commands that were from an unknown person.

The user shared the Alexa transcript files with Germany’s C’t magazine, which listened to many of the files and was able to “piece together a detailed picture of the customer concerned and his personal habits,” including his identity and the name of his girlfriend, their jobs, and taste in music. Amazon blamed the “unfortunate case” on “human error” and described it as an “isolated incident.” Accident or not, this mishap could be used as another data point for proponents of increased tech regulation, which given support from industry executives and Congress, could become reality in 2019 in some form.

TAKING A STAND

A recent report from Accenture Strategy found that consumers worldwide are increasingly supporting brands whose purpose aligns with their beliefs and rejecting those that don’t. The survey of nearly 30,000 consumers in 35 countries found that 62% of respondents want companies to take a stand on current social issues, and that nearly half of U.S. consumers who are disappointed by a brand’s words or actions on a social issue complain about it, with one in five vowing to never support the company again. Likewise, a Morning Consult study found that more than half of both Democrats and Republicans say that a brand’s “stance on a social or political matter is important when it comes to buying a product or service.”

The results of these studies may explain why companies like WeWork, which announced in July 2018 it would no longer serve meat at company functions, are willing to take political stands. Companies are willing to mix business with politics when they feel their consumers are demanding it, but businesses must tread carefully or risk alienating customers who may disagree.

BURSTING THE BUBBLE

While the prevalence of filter bubbles is accepted by many as fact, new evidence suggests few people actually lock themselves in intellectual isolation. A new report from the Knight Foundation found that partisans actually tend to overestimate their use of partisan outlets and underreport the extent to which they consume nonpartisan or “ideologically misaligned outlets.”

According to the study, the results show that people are increasingly viewing their consumption of media as an “expressive political act” and a signal to others of who they are.  So, for companies and cause organizations hoping to achieve their objectives in policy debates, consider this new insight before crafting public affairs efforts to reach audiences that matter in the public arena, and never underestimate the importance of understanding the wide range of stakeholders engaged on an issue.

New Deal Here Again, Chicago Shenanigans, and House Hunters: Oregon

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Here’s What You Need To Know

As Democrats had no clear path to combat climate change only a few weeks ago, the Green New Deal has seemingly come out of nowhere, gaining national attention as influential House members, Senators, and potential 2020 presidential candidates voice their support for more urgent action. With some calling it this generation’s “moon shot” or “civil-rights movement,” the Green New Deal has gained enough momentum to suggest that it will become a major issue impacting companies, cause organizations, and consumers next year and beyond. Here is what you need to know about the Green New Deal and its potential impact:

  1. What Is The Green New Deal? Inspired by President Franklin Roosevelt’s New Deal programs during the Great Depression, the Green New Deal is a pledge to combat climate change supported by incoming Rep. Alexandria Ocasio-Cortez and young climate activist groups such as the Sunrise Movement and Justice Democrats. However, there is confusion as to what exactly this pledge entails. Currently, the Green New Deal is merely a slogan for an aggressive approach to climate change, a call for a(n impossibly) quick transition to 100% renewable energy (natural gas and nuclear need not apply), and an idea of how a new select committee on climate change should function. More ambitious interpretations believe it to be an expansive plan to achieve net-zero carbon emissions by 2050 with a goal of achieving full employment, advancing racial justice, and providing universal healthcare.
     
  2. Who Is Behind The Green New Deal? Besides the vocal support of the incoming-congresswoman from New York, a relatively new group – the Sunrise Movement – has taken the lead in organizing young people to push for ambitious action to fight climate change, including the Green New Deal, and exposing what they believe is wrong with fossil fuel companies. Sunrise grew out of the 2016 election, and is focused on winning elections from 2018 through 2020, merging political organizing with the “creativity, moral clarity, and disruptiveness of efforts like divestment and NoDAPL.” The group’s ambitious efforts include grassroots mobilization in “politically significant states” and the goal of creating small “hubs” throughout the country to influence elections in 2020 and beyond. With connections to Occupy Wall Street and the divestment movement, including groups that received grants from booster organizations such as 350.org and Open Society Foundations, Sunrise is certain to be an influential group targeting policymakers and the energy industry in the public arena going forward.
     
  3. What Challenges Does A Green New Deal Face In Becoming Reality? The political challenges, from Republican opposition to a lack of clarity to an internal power struggle between veteran lawmakers and vocal activists, are daunting. Yet, perhaps the two most challenging obstacles are technology and popular support. For the former, current and near-term technology is not capable of generating anywhere near enough reliable, always-on electricity or store enough of it from renewables to power America. As to the latter, public support for the Green New Deal is high now, but many Americans are just hearing about it for the first time, few know what it means, and once they learn about how it will impact their cost and quality of living, support could dissipate quickly.
     
  4. Is The Green New Deal Here To Stay? The groundswell of initial support for the Green New Deal, as well as the growth and influence of new organizations like the Sunrise Movement, represent a heightened level of political and reputational risk for companies, cause organizations, and consumers. As this New Age of Activism becomes fully formed, environmental groups are using new and more aggressive tactics that have never been seen before, and they are organizing more quickly and widely than ever. Thus far, there has been little organizing on the opposite side of this public policy issue in response, although this new normal suggests that the risks will increase, rather than decrease, in the near- to long-term.

As the Green New Deal gains traction, companies and cause organizations can take some solace in the fact that there are no concrete policies and proposals yet, meaning there is still time to proactively prepare their strategy to confront this coming public affairs challenge. Before voicing support in an attempt to ward off public peer pressure, companies and organizations should be careful to appease such a broad and unspecific coalition, some parts of which are unlikely to be swayed, appeased, or satiated unless they get their way.

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House Hunters: Oregon 

If you live in Oregon, your house may soon get more crowded. In order to increase housing supply, lower prices, and diversify neighborhoods, the Oregon state legislature introduced a new proposal that would ban single-family zoning in towns and cities, which one economist argues would more efficiently accommodate future population growth than simply building more housing under current zoning laws. However, critics claim the ban will encroach on residents who own and want a single-family home and care about property rights, but could also incentivize homeowners to sell their land to developers, increasing demolitions and ruining neighborhoods.

The proposal is the first of its kind at the state level, but it comes on the heels of a similar law passed by the Minneapolis City Council earlier this month and the City of Portland is currently considering its own ban, perhaps signaling a broader trend toward top-down zoning reform as a policy proposal du jour – despite evidence that government zoning rules have contributed to rising housing costs across the country rather than make housing more accessible.

California Texting Tax Will BRB

California taxpayers may want to thank federal regulators for shielding them from higher taxes following the Federal Communications Commission’s vote to classify texting as an “information service” rather than a “telecommunications service.” The FCC’s decision forced the California Public Utilities Commission to back down from a proposed tax on text messages, which had been scheduled for a January vote to determine whether texting should fall under a California law levying a surcharge on telecom services.

“Prior to this FCC ruling,” the CPUC explained on Twitter, “text messaging was not a classified service under federal law,” so the CPUC saw it as a potential avenue to raise revenue from taxpayers. This episode serves as a reminder of the impact that federal and state regulators can have on individuals and businesses, and how even far from the halls of Congress, the seemingly smallest details can have some of the biggest impacts.

Bad Batteries Busted

Residential batteries used to store energy and power homes, long lauded as a critical technological innovation in the fight against climate change, may not be as green as once thought, according to a new study. Climate activists have promoted home batteries as a way “to take control of energy costs, get more from solar panels, and be less reliant on importing dirty power from the regional electricity grid.” Yet, researchers determined home battery users tend to draw power from the grid for storage when energy is at its cheapest – that is, when it’s being produced by coal and other fossil fuels.

In order to reverse this incentive structure, the study found, utilities would need to drastically hike prices on electricity at times when power is mostly being produced by fossil fuels. In fact, the main result of this revelation looks to be more pain for consumers: California regulators will begin mandating “time-of-use” rates in 2019 to artificially inflate energy costs, and several other states are reportedly not far behind.

Chicago Shenanigans

Chicago’s good old-fashioned machine politics give a whole new meaning to vulnerability. David Krupa, a 19-year-old Republican student at Chicago’s DePaul University, knew his chances were slim when he decided to run for Alderman of the city’s deep blue 13th Ward, but he collected more than triple the number of requisite signatures – 1,729 – and filed as a candidate. Illinois House Speaker Michael J. Madigan (D) and his 13th Ward Democratic Organization had other ideas: the Boss found over 2,700 people to swear affidavits revoking their signatures from Krupa’s petition.

Not only did more than a thousand more people revoke their signatures than had actually signed, but subsequent examination of the names revealed only 187 of the revocations matched names on the petitions. Election attorney Michael Dorf opined “So, what about the 2,609 people who didn’t sign for David but who filed revocations? That’s fraud. That’s perjury. That’s felony.” That’s also a gaping vulnerability for which we should hope voters demand accountability. In the meantime, welcome to Chicagoland, Mr. Krupa!

France’s Carbon Tax Revolution, Investing in Vice or Virtue, and Robocopping Robocalls

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Here’s What You Need To Know

Those pushing for a Green New Deal here at home should be careful what they wish for – just look at what’s been happening in France. On November 17, 282,000 protesters showed up in high-visibility yellow vests in Paris to protest the government’s recent carbon tax, which has been followed by weeks of riots resulting in the most violent rally to hit Paris in decades. Here is what you need to know about the underlying global trend that this revolt against carbon taxation reveals:

  1. What Is Happening? French President Emmanuel Macron supports policies to reduce climate change, and despite France’s already relatively low-carbon economy, has proposed further lowering carbon emissions through a fuel tax, as well as other measures such as incentives for people to buy electric vehicles. Macron’s carbon tax would raise an estimated 8 billion euros annually but create an only “minuscule global benefit.” It would also raise the cost of living in an already struggling economy, the bulk of which would be bared by rural and working-class citizens who depend on cars to get to work. Over the past few weeks, the “Gilet Jaunes,” or yellow vests, have angrily protested against the carbon tax and Macron’s perceived disconnectedness from his working-class and rural constituents. More than 260 people have been wounded, at least three have died, and more than 400 were arrested after violence sparked, rocks were thrown, tear gas was used, and monuments were vandalized.
     
  2. How Has The Government Responded? Bold environmental policies were at the heart of Macron’s political agenda when he rose to power 18 months ago, yet the riots are the latest episode highlighting his government’s underachievement on this front. While he has shown “little willingness to compromise” in the face of the protests, Macron’s government this week announced that it has suspended the tax for six months to allow for public discussion. Prime Minister Edouard Philippe said anyone would have “to be deaf or blind” not to see or hear the anger that led to the protests that rattled the capital city, and that “No tax merits putting in danger the unity of a nation,” leaving it an open questions as to whether or not Macron’s climate policies will have any traction with the French public, especially because opponents of the tax do not want “a delay,” but rather “the cancellation of the planned tax increase” altogether.
     
  3. What Does This Mean For Climate Agendas Around The World? The events in France demonstrate the complications for policymakers proposing climate agendas that voters do not believe justify polices that would raise the cost of living and hurt the economy, a trend that has been seen globally. In Canada, Ontario is suing to block a federal carbon tax, and in Germany the government’s planned transition to renewable energy is facing political difficulties. In the U.S., voters in Washington state defeated a carbon tax on the ballot this year that would have started at $15 per ton of emissions and increase by $2 annually. Additionally, despite building support from the incoming Democratic majority in Congress for robust action on a Green New Deal, the lessons of France’s carbon tax revolution is that voters need to support such action – which remains to be seen domestically thus far.
     
  4. What Does This Mean For Future Carbon Pricing Efforts In The U.S.? Carbon pricing appears to have been gaining traction lately, most recently with a bipartisan group of lawmakers in the House of Representatives introducing the first carbon pricing legislation in a decade.  Yet, the Paris riots show that the cost of carbon pricing policies cannot be borne by the citizens least able to afford it. As organizations like the Climate Leadership Council have noted, the proceeds from such a carbon fee would need to be “returned to the American people” if the concept is going to gain popular support and keep the cost consumers pay for energy from skyrocketing. Others, such as the Alliance for Market Solutions, have argued that a price on carbon would need to be revenue-neutral and replace, not add to, existing regulations on pollution. Either way, both proposals work toward addressing the underlying inequities driving the unrest in France, but they face stiff resistance from environmentalists like those pushing for a Green New Deal.

While panic over climate change will continue to be a recurring trend, even though many of the most dire predictions have proved to be false, such alarmist predictions  – and the pushing of aggressive policies to prepare for those scenarios that allow the brunt of the costs to be borne by citizens least able to afford them – result in too high a cost. To make progress on addressing climate change concerns, policymakers would do well to always have the Paris riots on their minds.

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INVESTING IN VICE OR VIRTUE?

With the remarkable rise of environmental, social, and governance (ESG) factors in investing, you would be wrong to think that ESG couldn’t get much higher. In fact, the $8 billion socially responsible investment industry is having difficulty defining the burgeoning cannabis industry.

As it has grown, cannabis is causing investors to grapple with whether it is similar to “sin” stocks that they try to avoid – like alcohol and tobacco – or, whether its medicinal purposes mean that it is an ethical investment. Depending on their particular criteria, ESG-focused investors are determining what companies they can invest in, especially because the “opportunity for growth is just too strong” to ignore.

While ESG investors have laid out principles to position themselves as pure and socially-conscious, some of their actions are driven by what is currently on the political agenda they support. That was fine when “sin” industries were on the opposing side of that agenda but investing in cannabis poses a conflict they did not anticipate, a challenge companies trying to appease these investors have confronted all too often.

ROBOCOPPING ROBOCALLS

Next week, the Federal Communications Commission (FCC) will vote on a measure that is meant to combat mobile phone spam including robocalls and spam texts, and as with anything the regulator does these days, it’s controversial. The measure comes after a letter FCC Commissioner Ajit Pai sent to the CEOs of major U.S. mobile providers earlier this month urging them to take steps to create a system to authenticate calls and end nuisance calls.

Yet, in the wake of the hysteria surrounding the FCC’s repeal of net neutrality rules, Pai’s proposal to classify text messaging as an information service, rather than a telecommunications service, so that phone carriers can block spam texting, has raised concern from some consumer advocacy groups and at least one fellow commissioner, who fear the regulation could lead to censorship controlled by the providers. Regardless of the outcome of next week’s measure, the increasing public attention and criticism focused on curbing robocalls suggests that the public policy debate on this issue may become heated – and that heightened political and reputational risk is the new operating normal for the FCC.

PLAYING THE LONG GAME

Securities and Exchange Commission (SEC) member Robert Jackson Jr. threw a wrench into Silicon Valley’s plans last week when he criticized a proposal for a “Long-Term Stock Exchange” (LTSE). The LTSE, which is a planned new public market designed to foster long-term growth for startups by awarding shareholders additional voting powers the longer they hold stock, has won support from prominent techies including venture capitalist Marc Andreesen and LinkedIn cofounder Reid Hoffman, and the Trump Administration has also signaled interest in promoting such long-term investing.

According to Jackson, however, “Research has made clear that loyalty share structures often make it virtually impossible for investors to hold executives accountable.” Although opposition and wariness from institutional investors mean that the LTSE will not be approved at this time, the public conversation is indicative of a growing desire in the world of capital to move away from the breakneck, short-term incentives of most public markets and towards a culture of strategic, long-term investment.

FROM DESIGNER GENES TO DESIGNER BABIES?

The Director of the National Institutes of Health joined the rest of the scientific community last week in roundly condemning the work of a Chinese scientist who recently “created” the world’s first gene-edited babies. In a statement, the Director lambasted the experiment and other such “epic scientific misadventures.” The misadventure in question, though almost universally disavowed, may bear some positive fruit by hastening a long-overdue discussion in the scientific community: how can scholars or governments regulate science to enforce bioethical standards as technology develops?

Some scholars want a central body to review experiments for ethical concerns, while others are seeking clearer guidelines for gene editing in particular, although the most relevant factor in any ethical standard will always be the character of the government involved. While the United States may establish strict rules tied to funding mechanisms in its own jurisdiction, regimes like China’s will enforce or relax restrictions based on the long-term goals of their ruling elite, posing continued operational challenges for companies that operate globally.

Driving Into The Future

Driving Into the Future, No Bad Attitudes Allowed, and Cold as (Slurpee) Ice

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Here’s What You Need To Know

This Thanksgiving will see the most Americans traveling since 2005, and of those, nearly 48.5 million Americans will be hitting the road in their vehicles to be with family and friends. With the recent advances in automobile technology, it’s not farfetched to envision many Americans unplugging their self-driving vehicles to set out on their holiday pilgrimage in just a few short years. These technologies raise a number of challenges as they come closer to reality, so here is what you need to know as the public policy discussions – perhaps around the Thanksgiving table – begin in earnest:

  1. Legacy Carmakers May Be The Disruptors After All: After all of the hype surrounding Tesla, as well as other companies bursting into the industry such as Waymo with its driverless car service, trends throughout the industry toward electric and self-driving vehicles suggest that it may in fact be legacy carmakers who lead the way into the future. Legacy carmakers have found themselves in “a far better disruptive position than the alleged disruptors,” largely due to their ability to fund their disruptive operations with their successful conventional businesses. This would explain the ambitious goals set by legacy automakers over the next few years, which may see Honda and General Motors offering a self-driving car, Volvo making every model in its fleet available as an electric-powered car starting in 2019, Fiat Chrysler introducing a diverse lineup of new electric vehicles over the next four years, and Volkswagen’s plan to sell 50 million electric cars, potentially in cooperation with Ford – as well as innovations from other companies. Whatever comes to pass, it is clear that the death of the industry is exaggerated, and that it will play a significant part in the transition to new technologies – along with the newer companies that have entered the industry.
  2. Policymakers Pushing EVs Should Push EV Infrastructure Instead: The biggest hurdle to the proliferation of electric vehicles may be more than just their current higher price, and is perhaps more benign than previously thought: a lack of charging infrastructure. According to Goldman Sachs, the world would need to spend $6 trillion on infrastructure such as charging stations and power networks for the full adoption of electric vehicles, which could require government subsidies and support to reduce transition costs. But, the private sector, in the form of utilities, could lead the way if regulators will let them. In certain states, officials are hesitant to let the utility industry build EV infrastructure that all electricity customers would pay for and few (for the time being) would use. Therefore, policy efforts to incentivize car buyers to choose electric vehicles at the state and federal levels may be better directed at influencing infrastructure policies that encourage the build-out of electric vehicle infrastructure, potentially led by utilities, and possibly as part of a post-election infrastructure compromise.
  3. More Safety Means Higher Insurance Costs: While technological advances make today’s vehicles safer and less expensive to own, that same technology has ironically resulted in increasing costs to insure these vehicles. This is because the evolution to more computerized vehicles means that chips, dents, and scratches may no longer be cosmetic damage, but can negatively impact fragile sensors. These technologies have doubled repair bills for minor collisions, which suggests coming disruption for the $247 billion premium auto insurance industry as repair costs increase and autonomous technology becomes more prevalent.
  4. Debates On The Moral And Ethical Dilemmas Of Autonomous Vehicles Are On The Horizon: As more autonomous vehicles take the road, uncomfortable moral and ethical questions will need to be answered. Local governments will likely be the first to grapple with the gradual and as-yet-unregulated integration of autonomous vehicles onto streets, but if human-driven vehicles are indeed “legislated off” the roads, there will likely need to be an engaged public policy discussion and framework that provides guidance for how the technology in future self-driving vehicles created by companies should prioritize lives in different scenarios where lives are at stake.

The recent advances in automobile technology have led to smarter, more efficient, and more comfortable vehicles at a more affordable price than ever before. This trend is likely to continue with even greater speed as electric and autonomous vehicles become more common, suggesting that related public policy issues (strategic minerals, anyone?) will be featured more prominently in the public policy debate going forward. From all of us here at Delve this holiday season: drive carefully!

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NO BAD ATTITUDES ALLOWED

Analysts at Delve know the importance of vetting, but artificial intelligence (AI) has taken vetting to an extreme new level. Companies have begun using new algorithms to go over potential future employees’ social media accounts, leaving no tweet or Facebook comment unread, and one such platform called Predictim even vets babysitters for parents by searching accounts for everything from criminal activity to “bad attitudes.”

Proponents believe uncovering objectionable social media activity will prevent damage to the company’s reputation or work environment, although critics warn that AI systems do not understand the context of tweets and comments, could make unfair judgments that may prevent a skilled candidate from getting a job, and can also be susceptible to bias. While vetting is an important part of the hiring process, the drawbacks of relying fully on machines to evaluate job candidates demonstrates the importance and value of human analysis.

WHAT’S YOUR NUMBER?

The secret world of customer service is becoming not so secret anymore, thanks to The Wall Street Journal recently bringing to light how some companies have been judging us as customers. Companies ranging from retail to airlines to cars are increasingly using a customer service rating system known as customer lifetime value, or CLV, to inform their business decisions. A customer’s score is based off of traits such as age, marital status, zip code, the number of items they return and customer service calls they make, and even the likelihood of them bad-mouthing a company.

These scores are not typically made available to customers, who are often unaware that they exist, yet such scores can determine the prices they pay, the products and ads they see, and the perks and customer service levels they receive. As more companies adopt CLV scores and customers become more aware of their existence, policymakers may begin investigating companies on this matter and explore implementing guidelines for regulating how such scores are calculated and used in the future, lest such a system lead to discrimination (or claims of discrimination) against certain customers.

WHEN UNIONS ARE ANTI-UNION

Unions frequently attack CEOs for not sharing their wealth with employees, but ironically, it appears that the leaders of these unions are not sharing their own wealth. The Office and Professional Employees International Union, which represents the office workers of the AFL-CIO and the SEIU, recently criticized the two leaders of these unions, Richard Trumka and Mary Kay Henry, respectively for “richsplaining.”

The AFL-CIO and SEIU are reportedly attempting to force contracts on workers that will freeze pay, reduce sick leave, and weaken senior protections. This criticism exposes the unions’ vulnerability on the same issues they criticize other companies and executives for, and the hypocrisy damages the unions’ credibility in the public arena in a way that can impact their ability to achieve their objectives in the future.

COLD AS (SLURPEE) ICE

Just as Motel 6 settled its lawsuit over its too-cozy relationship with Immigration and Customs Enforcement (ICE), a new company is facing a similar public affairs challenge related to the agency: 7-Eleven. After a number of ICE raids at 7-Eleven stores demanding paperwork and information from franchisees about their current and former employees’ legal status, some franchise owners are suspicious that the 7-Eleven corporate office is playing a role in which stores are raided, largely because those raided are owned by franchisees who have challenged the company on everything from inventory requirements, profit-sharing, and even the way Red Bull cans are displayed.

The company has been known to use questionable tactics in the past against franchisees including surveillance vans and hidden cameras to build termination cases against them, and this “weaponization” of ICE would be a new, aggressive step. While it remains to be seen how this all plays out, we can speculate that there will be political and reputational damage for the company as it gets tied to a politically-sensitive agency, and as its internal disagreements spill out into the public arena.

The Shutdown Windfall, Fact Advocacy, and How Not To Win Friends and Influence People

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Here’s What You Need To Know

The midterm elections have come and gone, leaving a brand-new Congress in their wake. January will see Democrats, fueled by a passionate core of liberals, take control of the House of Representatives, while Republicans expand their Senate majority. If the past two years seemed rigidly partisan, the next two will likely be a cacophony of ideological bickering – with many expecting an elevated threat of a government shutdown. However, for companies and cause organizations that could easily find themselves and their public policy agendas caught in the middle, what is most important may be what comes after a shutdown.

Whether you are preparing for gridlock or compromise, Delve CEO Jeff Berkowitz and The Signal Group Executive Vice President Noe Garcia recently penned an analysis of what to expect from the return of divided government in America:

  • The Last Two Divided Governments Resulted In Shutdown Showdowns. In 1994, a class of high-octane Republican partisans took over Congress in response to the first two years of the Clinton Administration. The results were several well-publicized battles within the divided government that led to two government shutdowns. In 2013, government was divided between a Democratic White House and Senate and a Republican House of Representatives only three years removed from a wave midterm election, resulting in a noisy spat between the parties that led to another government shutdown.
  • But What’s More Important Is What Happened After The Shutdowns. In both examples above, the periods following the shutdowns were surprisingly productive in terms of policymaking and major legislative accomplishments that made it to the president’s desk to be signed into law. Following shutdowns during the Clinton Administration, a coalition of lawmakers managed to pass an impressive slate of policy achievements that included Welfare Reform, the Health Insurance Portability and Accountability Act (HIPAA), and even a gun ban for domestic violence offenders. During the Obama Administration, following the 2013 shutdown, bipartisan pragmatists later advanced VA reform, a farm bill, and loan support for Ukraine.
  • Why Is Post-Shutdown Policymaking Effective? Despite all of the polarization that leads to intransigence and shutdown, real policymaking is still possible. Extreme partisans tend to stick to their ends of the political spectrum and message on issues important to the base. To them, the debate is an end unto itself; they will not be driving the agenda that gets signed into law. Other lawmakers move quietly to find compromise, negotiate, and advance legislation in a politically complex Congress. The negotiating table does not disappear in such a political landscape, but there are fewer seats; strong partisans are not likely to be in the room and decisions are made by those committed to getting bills signed into law.
  • What Are Likely Areas For Compromise In The 116th Congress? The path to legislative effectiveness in the 116th Congress may be hard to see, especially if partisan divisions produce something as dramatic as a government shutdown. But opportunities for compromise do exist: an infrastructure package, regulation of Big Tech, USMCA, drug price reform, even a healthcare stabilization compromise could be on the table. What will notably be absent are items on the agenda that Democrats used for their successful campaign effort, and which will provide opportunities for both sides of the political spectrum to message towards their base in advance of the 2020 election, such as student loan debt, climate change, and immigration.

Every election brings new opportunities as the political deck is reshuffled and new hands are dealt. An ineffective federal government would be the obvious conclusion to draw from the apparent return of partisan gridlock, but history tells us otherwise. Hyper-polarization may be the norm for the 116th Congress, but compromise is inevitable, and legislation will be passed. If you can recognize the openings in this dynamic new landscape, you can advance your organization’s goals while the competition stagnates.

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FACT ADVOCACY

What started as monthly gatherings to drink beer and “nerd out” over transportation policy, the advocacy group TransitMatters is now reshaping Boston’s public transportation system. Founders Marc Ebuña and Ari Ofsevit are redefining citizen engagement by using research insights to promote improvements to the city’s transit system.

For example, in finding inefficiencies, bottlenecks, and glitches, TransitMatters saved the Massachusetts Bay Transportation Authority $500,000 by proposing changes to its existing service system. At the same time, the group has enhanced economic productivity by demonstrating the need and benefit of overnight and early morning bus services, which were launched through outreach to local government and transit officials supported by data that helped them make their case.

Whether in the business, political, policy, or advocacy space, TransitMatters’ success highlights the importance of leveraging facts when it comes to achieving public policy objectives.

THE NEXT GREAT CRYPTO DEBATE

Just as the world received some positive climate news, Bitcoin was called out for being the “nail in the coffin” of climate change, as even it cannot escape the critical eye of environmentalists. Cryptocurrencies such as bitcoin require far more electricity per-dollar than it takes to mine real metals such as gold or silver, due to the enormous amounts of energy needed to compute the complicated blockchain transactions underpinning these cryptocurrencies.

A recent report calculated that Bitcoin creates 69 million tons of carbon dioxide, the same amount as Austria, which has a population of 9 million people. Even though the IT sector is actively working to reduce its footprint, environmentalists are worried that if Bitcoin continues its rapid growth, it could cause dangerous levels of warming – suggesting that a coming fight between environmentalists and cryptocurrency proponents may be the next great crypto debate in the public arena.

NOT PLASTIC NOR PAPER

Well, that didn’t take long. Now that the plastic war has taken over, a new war is waging against paper. Used to be thought of as the more environmentally-friendly option compared to plastic and Styrofoam cups, environmentalists are now working to ban paper coffee cups. The cups are under attack for being bound by plastic linings that need to be separated before recycling, ending with many of them in the trash even when put in recycling containers.

What used to be the more sustainable option is now evil, not to mention more expensive – which will likely be passed onto consumers in the form of a price increase. The escalation against paper cups proves that being more sustainable is no longer sustainable enough, something that companies and cause organizations should be thinking through before negotiating or making concessions to activist groups driving certain political agendas.

HOW NOT TO WIN FRIENDS AND INFLUENCE PEOPLE

Snapchat’s PR firm recently made a lot more work for itself, as it created some bad PR for the company it now must overcome. The firm, PR Consulting, is suing actor Luke Sabbat for not fulfilling his influencer marketing contract to promote Snapchat’s Spectacles camera sunglasses. Influencer marketing should ideally feel “subtle and natural,” but this lawsuit brings unwanted attention to the behind-the-scenes contracts and planning of it all.

It not only creates reputational damage for Snapchat, but other brands that rely on influencers to sell their products. Moving forward, influencer marketing contracts will likely become stricter to prevent setting off future public affairs and reputational challenges, and influencers will need to prove they are accountable (and can actually influence) if they want to keep getting paid to post.

Ten BILLION Dollars

The Midterms and Your Organization’s Risk, Tipping the Balance, and PolitiFarce

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Here’s What You Need To Know

As election day approaches, the question remains if the country will be overtaken by the blue wave or if the red wall will be big enough to stop it. Regardless of the outcome, however, companies and organizations will need to navigate and influence the post-election environment to their advantage. Here is what you need to know to be prepared to overcome the challenges and make the most of the opportunities after November 6th:

  • Will The Red Wall Be Enough To Hold Off The Blue Wave? The Republican National Committee has raised over $270 million for the 2018 cycle, which has been invested in data and turnout infrastructure over the past two years, building on the success of its 2016 operation that helped deliver a surprise victory for Donald Trump. As much as people say this election will be a referendum on the president, Trump has had almost straight-line approval and disapproval since he has entered office, suggesting there is little buyer’s remorse that Democrats can leverage into new votes. Further, the Kavanaugh confirmation galvanized Republican voters and erased any enthusiasm gap once enjoyed by the Democrats. When it comes to the Blue Wave, Democrats have raised a lot of money recently, but it is not being spent in the right places (Texas, anyone?) and may be too late to be effective. That said, Democrats only need 23 seats to gain a majority, and the historical average midterm loss for the president’s party is 25. That loss increases to 37 for presidents whose approval rating is under 50% in the lead up to the midterm election. Given this historical trend, Democrats do not need a wave to win back the House.
  • What Should Businesses Expect If Democrats Do Take The House? If Democrats take control, regardless of what they are saying legislative and policy wise, what will overwhelm the leadership’s agenda will be anti-Trump fervor, demanding investigations and impeachment, but the focus and implications of those investigations would reach far beyond the Administration. On a number of key policy issues, companies in industries like energy, pharmaceuticals, financial services, and beyond are at risk of becoming proxies for Trump and his policies. Combine this fervor with the multiple Democratic 2020 presidential contenders in Congress competing for attention and appreciation from their party’s liberal base, and the potential policy and reputational harms for companies and industries multiply significantly. Companies can also expect a Democratic majority to build on the momentum of efforts to coordinate with government officials at the state level.
  • Risks From A Blue Wave Extend Well Beyond The Beltway. There are two offices at the state level that the private sector should be watching closely: gubernatorial races with candidates that could be jockeying for the 2020 Democratic nomination, and state attorneys general races with candidates who will likely target corporate interests to elevate their political profiles. While a slew of senators in D.C. are already angling for the nomination and using policy proposals targeting companies, Wall Street, the fossil fuel industry, and others to build support from their base, several gubernatorial candidates could take that approach from their statehouses if they think: “Why not me?” This includes Andrew Cuomo (NY), Gavin Newsom (CA), and Richard Cordray (OH). For attorney general, Keith Ellison in Minnesota and Letitia “Tish” James in New York could build national profiles by suing companies on issues that translate to public support, whether lowering the price of insulin, Wall Street divestment, or New York State’s lawsuit against Exxon Mobil alleging the company deceived shareholders on climate change, which could expand to ensnare other firms and even investor-owned utilities.
  • It Is Not Just Who Is On The Ballot, But Also What Is On The Ballot. On November 6th, voters will decide on 157 ballot measures in 37 states across the country, and succeed or fail, these measures provide a predictive model for forthcoming policy battles. The volume of measures is not particularly noteworthy, but what is new and different is what is driving these initiatives: professionalized activists funded by national interest groups or high net-worth individuals, as opposed to local interests that can be held accountable for the consequences of their proposals. With Congress and Trump not enacting the policies national interest groups seek at the federal level, they are working in the states to build momentum and enact policy changes. What should raise companies’ and industries’ interest in these ballot initiatives is that strategies and playbooks in one state will be replicated elsewhere, and those that are successful will be replicated across the country with greater speed.

This highly-politicized environment is the new normal, and organizations and companies should be armed with the information and facts of policy and regulatory issues impacting them to protect their reputations. The more you can influence and shape events in the policy and regulatory landscape to your advantage, the better the chance that you can achieve your organization’s objectives – whatever the outcome of this year’s midterms.

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TIPPING THE BALANCE

Amazon has become the latest company to go to a $15 minimum wage, but at the same time workers in D.C. are pushing back. On October 16, the D.C. city council repealed Initiative 77, a measure passed by voters in June that would have raised the minimum wage for all tipped workers by 2026. The initiative, meant to provide financial stability and protections against sexual harassment, was fought by the tipped workers themselves, who argued it would destroy restaurants’ thin profit margins and cut jobs from their support staffs while potentially lowering tipped workers’ take-home pay.

Estimations concluded that Initiative 77 would cost the D.C. restaurant industry $600 million, surge food prices, force restaurants to buy from big box suppliers instead of local farms, and reduce the incentive to leave high tips. An increased minimum wage appears to be a favorable political stance for liberals to take, but when the workers who should be benefitting are fighting back, politicians may want to rethink their positions.

OVERSTEPPING AND OVEREXPOSED

Just as we predicted, receiving investment from sovereign funds of overseas countries brings a myriad of political and reputational risks for companies. This lesson was prominently on display in the scandal surrounding the death of Saudi dissident and journalist Jamal Khashoggi. After repeated denial, the Saudi government admitted that Khashoggi was murdered in its consulate right before Saudi Arabia’s Future Investment Initiative Conference, also known as “Davos in the Desert.”

American businesses, media outlets, and U.S. Treasury Secretary Steven Mnuchin pulled out of the conference in response, although the political and reputational risk has already impacted their future exposure to the Kingdom. Going forward, executives need to accept their roles as “de facto diplomats ” in today’s era of elevated risk, and evaluate their organization’s business decisions through this lens in order to avoid negative implications that may stem from it.

CLIMATE COVER THANKS TO TREES?

The UN’s Intergovernmental Panel on Climate Change recently put out a report on climate change, and panic ensued given its bleak predictions. Abigail Swann, a professor at the University of Washington, however published research that could change the way scientists view climate change. While most research on climate models focuses on wind, rain, and other physical occurrences, Swann believes researchers have ignored vegetation and how plants influence rainfall, a role that “blows the ecology community’s mind.” Forests provide carbon storage, water filtration, and wildlife habitat, and the total effect it can have on the ecosystem is largely ignored in gloom and doom studies.

Ironically, Swann’s research also finds that forest die-offs can be beneficial to the climate in certain areas, suggesting that environmentalist efforts to plant trees may do more harm than good to the climate in some cases. While there is uncertainty in how these findings can be implemented, it serves as a reminder that the earth remains incomprehensible to experts and predictions are futile, meaning balanced, responsible solutions are always a better approach than panic.

POLITIFARCE?

For the second time in a week, PolitiFact, a media fact-checker, has been caught not checking its own facts. The site originally ruled that a claim that Sen. Claire McCaskill (D-MO) said “normal people” can afford private planes was “false,” even though a video of McCaskill saying exactly that in a town hall is readily available on the Internet. PolitiFact only changed its ruling after receiving backlash for its favoritism.

Whether it was bias or sloppiness or both, these latest incidents make it more difficult for fact checkers to be seen as impartial referees instead of engaged combatants in the political clashes of our era.

NAFTA Flag

Making Sense of USMCA, Boardroom Shakeup, and Better Late Than Never

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Here’s What You Need To Know

Last week, the U.S., Canada, and Mexico announced an agreement on NAFTA 2.0, which will be known as the United States-Mexico-Canada Agreement, or USMCA. Even though the announcement of this agreement has been overshadowed by other machinations in Washington, this new trade agreement and its details will have a long-term impact on a range of economic activity across North America and the world. To help you understand whether USMCA is a great victory or a return to protectionism, here is what we know about it thus far:

  • So, What Exactly Does The Agreement Substantially Change? We all know Trump loves to put on a show, and with a huge focus on the name change, many have been left wondering if the re-naming is just that or if there is substantive change in the deal. One area of substantive change is in the auto industry. USMCA increases the percentage of North American-made auto parts required to qualify for zero tariffs, mandates a $16 minimum wage for factory workers (tripling the average wage in Mexico), and exempts Canada and Mexico from future American auto tariffs. Another key area of substantive change is that the agreement reduces Canada’s protection of its dairy market, opening the market to more American dairy imports and reducing restrictions on American producers marketing cheese and wine in Canada. Other changes include a push to expand labor unions in Mexico, as well as improved intellectual property protections for American pharmaceutical companies. If ratified, the agreement has a 16-year “sunset” clause, is subject to review every six years, and most of the provisions would go into effect in 2020.
  • What Is The Good, The Bad, And The Ugly? The good is that USMCA seems to have America winning in the auto, dairy, and wine industries, in addition to its wins in copyright protection. The bad is that those new car provisions might increase the eventual cost of cars for consumers, and despite having gained added trademark and patent provisions, big business – not just U.S. automakers – will likely have an increased cost of complying with the new agreement and will have lost the Chapter 11 investor dispute settlement mechanism that companies have used to sue the Canadian government in the past. Perhaps the most ugly part of the agreement is that it does not eliminate possible retaliation for Trump’s steel and agricultural tariffs, which have negatively impacted American jobs and economic growth. All in all, many are saying USCMA is not “a wonderful new trade deal” as Trump would have us believe, but rather a fine deal that will have no measurable effect on economic, wage, or job growth.
  • What Do We Not Yet Know? Trump may have started his victory lap a little too soon. While the three countries have come to an agreement, USMCA must get Congressional approval before it can take effect, as well as approval from national legislatures in both Canada and Mexico. The deal will likely not be voted on in the U.S. until 2019, and with midterms coming up, Trump may no longer have the support to pass the deal. If it does pass, only time will tell if it addresses some of the criticisms of NAFTA and spurs new economic growth, or if it trends to a continuation of the current regulatory framework.

Regardless of its future, Trump can now tout a win going into midterms, and his outgoing Mexican counterpart can point to a legacy achievement while his Canadian counterpart can show his constituency just how hard his negotiators fought for Canadian interests. For corporate interests, the announcement of USMCA removes some of the uncertainty hanging over trade policy since the Administration came into office, yet the disruption in politics that has now come to trade policy seems as though it will remain for the foreseeable future, which will pose new political risks for American companies operating globally.

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SHAKEUP IN THE BOARDROOM

A shakeup is happening in California boardrooms. SB 826 was signed into law and is the first state-mandated gender quota for corporate boards, requiring one female on a company’s board of directors by the end of 2019, two women on a five-member board by 2021, and at least three women on a board of six or more. Equal opportunity for all is an admirable goal, but like most overregulation, the law brings complications of its own, including questions as to whether it will actually do more harm than good.

The most robust research on the impact of such quotas is from Norway, which has required 40 percent of board seats to be female since 2008, and led to “younger and less experienced boards” and a “deterioration in operating performance.” Regardless of this data and the adverse effects that may stem from this quota, companies can expect that pressure for similar laws will follow California’s lead and be propagated in other states, and that the discussions in the public arena surrounding such laws will contribute to heightened political and reputational risks for corporate interests that could face backlash if perceived as not supportive of the regulations.

BETTER LATE THAN NEVER

The Senate is finally entering the 21st century in at least one way. Tucked into last month’s government spending bill was a provision requiring Senate candidates to file their campaign financial reports electronically, which House of Representatives and Presidential campaigns have been required to do since 2001.

Supporters are calling this a win for transparency, making political money disclosures more accurate and easier to access. E-filing will also reportedly save taxpayers $1 million every year. It will now be easier than ever for voters, reporters, and opponents to investigate a candidate’s campaign financials and “follow the money,” gaining insights into who funders are and what that may mean for policymaking should the candidate win.

GONE WITH THE WIND?

Achieving policy and business objectives in the public arena doesn’t simply happen by chance. Instead, it takes a broad, concerted effort, as well as a deep understanding of the oppositional forces you’re up against.

Recently in Texas, one energy company found this truth out the hard way when it had to stop plans to build two large wind farms on the Texas-Oklahoma state line. The company’s plans were criticized by anti-wind farm activists, politicians, fighter pilots from nearby Sheppard Air Force base, and researchers from a local university. If the company had done the right research early in its process, it could have looked into the common threads tying these stakeholders together: a local landowner and oil investor, who likely coordinated the network of opposition, and who the company could have engaged early in an attempt to address any legitimate concerns he may have had before enabling a broad public affairs effort against it.

In any endeavor, it is critical to be deeply informed on the landscape of interests and stakeholders that could potentially engage on a given issue. When you proactively do so, you understand what you are up against, the concerns and issues motivating the opposition, and what may be done to gain the social permission needed to achieve your objectives.

FAKE ADS IN THE HOMESTRETCH

There are 24 days until election day 2018, and now is a good time to remind our readers that things are not always as they seem, especially when it comes to political ads on social media. A good example of this is a series of political ads attacking Republicans, which have been traced to Tierney Lawrence, a Democratic law firm in Colorado. Under the guise of four newly incorporated limited liability companies, with names such as “Right Call Media LLC” and “Smashbutton Media LLC,” the law firm is running crude ads attacking Republican Party policies, donors, and candidates, as well as other crude ads – one of which hails the physical appearance of a Democratic lawmaker.

The firm’s four companies have purchased more than 2,000 ads, used various Facebook pages, and have gone to extraordinary lengths to conceal identities and motives. As we enter the homestretch before midterms, it is more important than ever to dig a little deeper to obtain an information advantage that will help you discern the true nature of what you see online.

California Governor Jerry Brown

California Keeps It 100, Copyright or Wrong, and It’s Crypt-on

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Here’s What You Need To Know

Earlier this month, California Governor Jerry Brown signed into law SB 100, the country’s most aggressive, and somewhat controversial, climate bill. SB 100 mandates that the Golden State generate 100% of its energy from emissions-free sources by 2045. Along with this bill, Governor Brown also signed an executive order for the state to achieve carbon-neutrality by that same year and negative greenhouse gas emissions thereafter. California’s approach to state-driven climate policy will be the framework for other states to follow suit, so understanding what’s happening will be imperative for policymakers and business leaders going forward – whether they have a California address or not:

  • How Did We Get Here? California has long pushed policies to address climate change, already having met a goal to achieve 1990 level greenhouse gas emissions by 2020. However, fueled by anger at President Trump’s environmental policies, the state has taken on an even-higher profile from fuel efficiency standards to clean air policies. While other states and cities have also enacted 100% renewable energy goals, California is the world’s fifth largest economy and its climate policies are considered a bellwether for economic growth, meaning that the regulatory framework underlying SB 100 could find itself applied elsewhere.
  • What Challenges Are There To Implementing This Policy? SB 100 is the “most ambitious clean energy goal in the country,” and there are a number of obstacles to its successful implementation, particularly as it relates to the gap between today’s technology and that needed to make these clean energy goals a reality. For example, while California has mandated that utilities install energy storage systems to store extra solar power derived when the sun is shining, these solutions are still developing, pointing to a large renewable energy gap for the foreseeable future that will likely increase the cost of energy for residents as utilities pass on the added costs of complying with the law. Additionally, the state has previously opted to close its last nuclear power plant, and carbon-capture technology that could qualify as a zero-carbon resource has not yet achieved widespread use, further raising concerns that energy costs will balloon and become less reliable.
  • How Have Environmental Activists Responded? Natural gas and other fossil fuels will remain a core component of reliable energy for the state, which may be part of the driving force behind environmental activists who have criticized and protested Governor Brown as not going far enough with his climate change agenda. Fair or unfair, the message is clear: regardless of reality, existing technology, and steps for cleaner, more efficient energy, environmental activists cannot be appeased or satiated unless fossil fuels are eliminated in their entirety. This is an instructive lesson for policymakers and corporate leaders exploring ways to make concessions to environmental activists in the hope they will lessen political and reputational pressure targeting them and their interests.

Although just signed into law, SB 100 has other states such as Massachusetts, New York, Oregon, Washington, and Pennsylvania already making plans to follow California’s lead. The Golden State’s push for ambitious emissions-free energy shows that local and regional leaders are ready to take policy issues into their own hands, and today’s age of heightened environmental activism increases the likelihood that state-driven climate policies will be more than simply a California issue – which should give companies an incentive to engage in public policy debates in their states now so that they will be prepared for attempts by policymakers and activists to implement their own climate agendas.

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COPYRIGHT OR WRONG?

The European Union this month passed a controversial copyright law, and the fallout from the new directive suggests that passing the measure may have been the easy part. In particular, critics of the law say that it “would normalize censorship and restrict internet freedom” by preventing users from being able to post content such as links, memes, and “snippets of music and film” that have generally been protected as fair use. It would also make platforms like Facebook and YouTube directly liable for the content they host, rather than the individual users, and make those companies compensate the publishers and creators of content if it is shared on their platforms.

Further, critics of this heavy-handed approach argue that the result will be widespread censorship as platforms apply automatic filters to takedown content that could violate the new directive. Whether right or wrong, the EU’s copyright law marks a new frontier in tech regulation, raising questions about how U.S.-based Big Tech will adapt and how imperfect technologies to block and hinder protected content – used by the companies themselves – will impact free speech, competition, and the open sharing of ideas and viewpoints.

WHEN AIR BECOMES REGULATION

Dubbed the “pollution police,” sensors are being attached to Google Street View cars that measure air pollution. While it started as an experiment in Denver four years ago, Google has now expanded this operation to 50 cars across cities in the U.S. and the world – which will help lead to a more robust dataset than ever before. When measured, pollution is often only measured in a few locations per city, a troublesome fact as levels can vary within the span of a single block.

Google plans on sharing its pollution data publicly and give access to researchers and cities, allowing them to “understand where that pollution is and who it’s affecting, and then really be able to take action,” which could mean that this new data will be used by policymakers to justify more regulations, or used by activists to pressure companies and governments. If Google’s program is successful, drivers, businesses, builders, and homeowners should be prepared for the environmental regulations that may follow and the associated costs that may come with it.

FOIA FOR SECRET BALLOTS

Across Michigan, local clerks are working to fulfill a request from the out of state United Impact Group LLC under Michigan’s Freedom of Information Act seeking ballot and voting data from the 2016 presidential election. Last month, the state Attorney General’s office deemed such information to be “open record,” meaning that voter names and addresses will be turned over to the group, prompting concern from some fulfilling the FOIA requests that United Impact Group may be able “to match envelopes to ballots to be able to determine who voters voted for.”

United Impact Group, which was discovered to be a part of Democratic super PAC Priorities USA, says the request will help “inform and bolster future voter right protections” and be used for future lawsuits against voter identification laws. This example serves as a reminder that public records requests provide actionable information that can be leveraged to provide an information advantage, and more importantly, that submitting and analyzing FOIA requests are a crucial tool for achieving objectives in the political, policy, and business environments.

IT’S CRYPT-ON

Earlier this year we portended a “coming worldwide crypto[currency] crackdown,” and a recent ruling by a federal judge suggests that greater regulation is indeed on the way. While top Securities and Exchange Commission (SEC) officials have pledged “to crack down on fraud in the virtual coin market” and make so-called initial coin offerings (ICOs) subject “to the same laws the agency uses to regulate stock offerings,” the judge’s ruling applying securities regulations to cryptocurrency investment products is the first time a federal court has weighed in on the matter.

The broadening of existing SEC laws to be applied “flexibly” to ICOs has generated criticism from stakeholders in the cryptocurrency industry, which will increase the pressure for Congress to create statutory clarity for ICOs directly. When it comes to the early stages of constructing a crypto regulatory framework, one thing is clear: it’s crypt-on.

Nike Boycott

The Business About Boycotts, Read Hearing, and the Greatest Show on Astroturf

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Here’s What You Need To Know

Football is back, and that means more than simply trash talking friends’ fantasy football teams. Nike unveiled an ad campaign featuring former NFL player Colin Kaepernick, who has become a divisive figure after kneeling during the national anthem as a form of protest in 2016. The ad campaign sparked an uproar, including a call for a boycott on Nike products. While videos of people burning Nike shoes and cutting off the logo of socks have filled Twitter feeds and news channels, this issue extends beyond one particular company and issue, as there is a growing prevalence of corporate boycotts in the U.S. Here is what you need to know about the business of boycotts before you find your company on trial in the court of public opinion:

  • How did we get here? As we have discussed in previous editions, frustrated with Washington politicians and the broken governing process, some companies have taken on the role of activists, taking political stances to sell their products. A recent CapX article applauded companies for being a moderating influence and pushing society forward “one pair of trainers at a time” in what it calls “woke capitalism,” but this type of activism exposes business interests to fraught political and reputational peril. Companies are facing pressures to engage in issues detached from their business and core values, which has led to boycotts from angry customers who hold opposing views. “The great age of boycotts” has arrived, enabled by social media and urging people to boycott companies such as Starbucks, Dick’s Sporting Goods, New Balance, and most recently, the New Yorker Festival.
  • What Are The Threats Facing Companies? Boycotts themselves do not alienate customers and hurt a company’s bottom line. Rather, it is what led to the boycott in the first place – the company’s actions, statements, or decisions that offended its core customers and fell outside of what a key segment of the customer base believes or thinks. Nike’s market cap tanked $4 billion in one day following the launch of the Kaepernick ad campaign, and while some of their young, hip customers with disposable income may approve of the campaign, other customers who purchase Nike products were taken aback by the campaign because it did not match the values they thought they shared with Nike. For a boycott to cause lasting brand damage, the offending action needs to offend a meaningful number of people, and time will tell what the impact on Nike will be. Companies can also find themselves the target of wrath even for long-time business practices. California Democrats are attempting to spread a boycott of In-N-Out Burger over its donations to the California Republican Party, but it has backfired because the fast food company has a long history of donating to both Democratic and Republican organizations. Even so, whether purposefully taking on the role of activist or not, a company’s actions will reflect on them, and standard business practices are now vulnerable to political pressure from activists – meaning that firms need to be prepared with an effective response to ensure outrage does not spread and grow over time.
  • How Can Companies Protect Their Reputations And Interests? Mixing business with politics is risky. Companies need to proactively determine how they will engage issues and have a plan in place for when they find themselves under attack. With today’s digitized activism, boycotts can go viral on social media in one day, such was the case with #BoycottNike. Described by The Wall Street Journal as “pseudo-boycotts,” today’s corporate boycotts are more about identity politics and posturing in the public arena  than truly changing an opponent’s behavior, making it more important than ever for companies to identify and understand their customers, and proactively prepare for when they find themselves in a public affairs challenge. Because while financial impacts of such challenges may not last or turnoff core customers, wading into politicized issues changes the nature of the business landscape in which a company operates.

Corporate boycotts show no sign of letting up, and indeed, their prevalence has even raised the specter that there may be too many boycotts, as #BoycottBoycotts has become a popular hashtag. Regardless of industry, companies will need to adapt accordingly, or face the consequences of a highly-public crisis.

News You Can Use

A READ HEARING? 

Mercifully, the Senate Judiciary Committee’s hearing on Supreme Court Justice Nominee Judge Brett Kavanaugh, and all of the corresponding “chaos,” “crazy,” and characters, has concluded. One main narrative pushed by opponents of the nomination demonstrates a skill in which Delve analysts are well-trained: the importance of finding actionable insights that matter on an issue.

In requesting withheld documents related to then-Staff Secretary Kavanaugh’s work in The Bush White House, Democrats would have received potentially millions of pages of records that would have likely resulted in a dump of nearly all the paperwork that circulated through The White House during his tenure, providing little substance, value, and insight into whether or not the nominee is qualified to sit on the Supreme Court.

Our take? These documents and corresponding narrative were less a relevant, substantive issue and more a rhetorical red herring to galvanize support of political bases in the public arena, posture for 2020 nomination contests, and deploy last-ditch messaging in the event it catches on and Kavanaugh’s likely nomination could be derailed.

TOO BIG TO KNOW

Silicon Valley and large mergers and acquisitions have captured the public bandwidth regarding monopolies, yet the “biggest antitrust story you’ve never heard” may actually focus on institutional investors. Firms such as BlackRock, Vanguard, and State Street own“more than any other single shareholder in 40% of the public companies in the U.S.,” meaning they are often the most influential shareholders in the country’s largest companies, which are often supposed to be in competition with each other.

Existing antitrust statutes are not easily applicable to this so-called “horizontal shareholding” because evidence connecting shareholder activism with non-competitive behavior is still being researched. As large investment firms continue to own greater percentages of the stock market than ever, and exert more pressure on and power over public companies through shareholder activism forcing the adoption of policies to further an unrelated political agenda, policymakers will need to develop a policy prescription to protect competition and account for this increasing trend.

THE GREATEST SHOW ON ASTROTURF 

Professional football season is back, and besides concussions, anthem protests, and falling ratings, there is now another challenge for the NFL: fake fans. A Wall Street Journalinvestigation uncovered that in 2014 the Federal Communications Commission received thousands of comments from fake fans in support of the NFL’s “Sports Blackout Rule,” a league-supported policy banning cable and satellite providers, as well as already-blocked local stations, from showing home games that were not sold out.

The “bogus, identically worded” form letters were submitted by the NFL from supposed fans such as “Luke Skawalker [sic] of Englewood, Colo., a Vladimir Stolichnaya of Brooklyn, N.Y., and Bilbo Bagginses in Brooklyn and Derry, N.H.” While entertaining, these fake comments demonstrate yet again the importance of monitoring, analyzing, and exposing opponents’ astroturf efforts when engaged in public policy battles.

(NOT) WORLDWIDE WEB 

Could the future of the worldwide web be less worldwide? According to some, the answer is yes. With the potential for a catastrophic cyberattack becoming more feasible, critical industries – from healthcare to financial services to transportation – that have found themselves under threat from cyber adversaries could join capitalist, liberal democracies in moving from the worldwide web to a more compartmentalized, secure intranet.

While authoritarian regimes such as China, Iran, and North Korea have created separate telecommunications systems “cut off from the global internet’s infrastructure,” the BRIC nations and European Union have also recently flirted with the idea. Should these intranet systems come to pass, they would bring a whole host of new challenges for both companies and policymakers to navigate, not least of which will focus on removing barriers and normalizing access between such entities.