Category Archives: Governance, Risk & Compliance

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The Dos, Don’ts and Maybes of Social Media

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Social mediaIt takes one second to send a Tweet or Instagram post onto the internet for all to see. But for companies active on social media, the legal ramifications of those 140 characters or that one photo can last a whole lot longer.

At a recent seminar in New York, lawyers and communications professionals representing some of the world’s most famous brands learned a lot about the dos and don’ts of social media for companies, specifically companies interested in pushing boundaries but avoiding lawsuits. Perhaps more importantly, they learned a lot about the maybe dos and maybe don’ts through several real-world examples.

“When you get it wrong, it comes with a lot of implications,” said Maggie O’Neill, managing director and partner at strategic communications firm Peppercomm, which recently co-hosted the event with Davis & Gilbert LLP.

Sue Me, Maybe?

O’Neill and her counterpart, Davis & Gilbert marketing and promotions partner Allison Fitzpatrick, brought up one of the more famous “maybe don’ts” in recent memory: Peyton Manning’s proclamation after Super Bowl 50 that his first order of business was to “drink a lot of Budweiser,” setting off a social media firestorm.

“This had the potential to really blow up into something legal,” O’Neill said. After all, Manning isn’t a spokesman for Budweiser, but he does own several Budweiser distributors. The appearance of “free” advertising if, say, an implicit agreement between the two parties was in place, would have been a no-no, and the fact that it’s not common knowledge that Manning owns those distributors makes it a “maybe no-no.” Adeptly, a Budweiser communications pro tweeted that, while the brewer was “surprised and delighted” at Manning’s off-the-cuff endorsement, “Budweiser did not pay Peyton Manning” for it. While that tweet doesn’t guarantee Budweiser’s immunity from a government lawsuit, it certainly represents a skillful handling of the situation.

Know Your Subject

Not all companies have been as adept, O’Neill and Fitzpatrick pointed out. The Duane Reade chain famously got sued by Katherine Heigl after tweeting an unflattering photo of the actress coming out of one of its pharmacies carrying bags. Heigl sued for $6 million, claiming the company violated New York State and federal laws that protect the use of a person’s likeness for trade purposes. She eventually dropped the suit, but it made the kind of headlines Duane Reade – and most companies – never want.

Fast-food chain Arby’s, on the other hand, got universal kudos for its tweet about the hat worn by rapper Pharrell Williams at the 2014 Grammy’s, which looked similar to the one on the Arby’s logo. “Hey @Pharrell, can we have our hat back,” Arby’s tweeted, with the hashtag #GRAMMYs. Pharrell was a good sport about it, and when he eventually put the hat up for charity auction on eBay, Arby’s announced via Twitter that it was the party responsible for the $44,100 winning bid.

“The best part is, Pharrell did not sue,” Fitzpatrick said at the panel. But, she added, “it doesn’t mean there’s no risk.” One quick and easy first step, according to Fitzpatrick, is to do a quick Google search to “see if they’re litigious or not.”

Copyright Law in the 21st Century

For brands active on social media, copyright law is another consideration. Being mindful of trademarks like “Super Bowl” and “NCAA” while tweeting about events can save companies a lot of money from potential legal woes.

For instance, when TGI Friday’s pushed boundaries by petitioning the International Olympic Committee to make bartending an official sport, lawyers were kept in the loop to make sure the campaign garnered media and public interest on traditional and social media but didn’t cross any copyright law lines.

What’s next?

With technology constantly changing and regulators scrambling to adapt to those changes, Fitzpatrick said the next frontier could be regulatory action against celebrity spokespeople. It’s generally known around the world that Nike endorses Tiger Woods, but what if a celebrity whose endorsement deal is lesser-known doesn’t disclose the relationship in a tweet? This could be the next major question the Federal Trade Commission starts asking.

Key Guidelines

Fitzpatrick offered a few general guidelines that companies can follow.

  • When using hashtags, be careful not to suggest an endorsement or association between your brand and the event, unless there actually is one.
  • The more the merrier. See if other brands are tweeting about the event. If they are, chances are your legal risks are lower.
  • There are a lot of work-related reasons to follow, a brand, on social media, so most experts think a simple follow is probably okay. A “like” or a “share” could be a little dicier.
  • When in doubt, research, confirm, and speak to legal.

California’s New Localized Water Controls a Step Forward

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With higher levels of rain and snowfall over the winter, California’s water situation has eased in some areas, prompting the state to initiate new water conservation rules, adopted on May 18 and in effect June 1 through January 2017. The regulations give control over water usage to local communities, which means more restrictions in some areas than in others. In Northern California, winter precipitation has filled some reservoirs, while drought conditions persist in Southern California.

The previous rule—enacted in April 2015 by Gov. Jerry Brown, who issued an Executive Order mandating a 25% reduction of urban water usage from 2013 levels over a nine-month period—saw a savings of about 424 billion gallons. That followed a failed year-long effort to achieve a voluntary 20% reduction in water usage, with statewide conservation results averaging between just 7% and 12%.

The State Water Resources Control Board explained that the new approach replaces the percentage reduction-based water conservation standard with a localized approach. The emergency regulation requires that urban water suppliers ensure that at least a three year supply of water would be available to their customers in case of drought conditions. Suppliers that would face shortages under three additional dry years are now required to meet a conservation standard equal to the amount of a shortage. A water agency that projects it would have a 10% supply shortfall, for example, would have a mandatory conservation standard of 10%. The regulation also makes previously passed water-wasting rules permanent, including no hosing of sidewalks, washing cars without a hose nozzle, or watering lawns within 48 hours of measurable rainfall.

“El Nino didn’t save us, but this winter gave us some relief,” Water Board Chair Felicia Marcus said in a statement. “It’s a reprieve though, not a hall pass, for much if not all of California. We need to keep conserving, and work on more efficient practices, like keeping lawns on a water diet or transitioning away from them. We don’t want to cry wolf, but we can’t put our heads in the sand either.”

Will Sarni, director and practice leader of water strategy at Deloitte, agrees with the direction the state is taking on conservation.

While it may appear that restrictions are being eased, which could send the message that things are going back to business as usual, “It’s not business as usual, but local entities are being given more control,” Sarni said. “My view is that water is ultimately a local issue, so providing greater flexibility and decision-making at the local level that aligns with an overall strategy within the state, or nation, makes sense.”

The model of local management actions that roll up to a regional entity have successfully been adopted in other parts of the country, he said, explaining that states do work together. One example is the Delaware River Basin Commission, which is an entity that has a say in how water is managed in the Delaware River. Other examples include the Great Lakes Commission and the Colorado River Compact. “So cooperating on water is actually more common than not,” Sarni said.

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Financial Services IT Overconfident in Breach Detection Skills

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Despite the doubling of data breaches in the banking, credit and financial sectors between 2014 and 2015, most IT professionals in financial services are overconfident in their abilities to detect and remediate data breaches. According to a new study by endpoint detection, security and compliance company Tripwire, 60% of these professionals either did not know or had only a general idea of how long it would take to isolate or remove an unauthorized device from the organization’s networks, but 87% said they could do so within minutes or hours.

When it comes to detecting suspicious and risky activity, confidence routinely exceeded capability. While 92% believe vulnerability scanning systems would generate an alert within minutes or hours if an unauthorized device was discovered on their network, for example, 77% said they automatically discover 80% or less of the devices on their networks. Three out of 10 do not detect all attempts to gain unauthorized access to files or network-accessible file shares. When it comes to patching vulnerabilities, 40% said that less than 80% of patches are successfully fixed in a typical cycle.

The confidence but lack of comprehension may reflect that many of the protections in place are motivated by compliance more than security, Tripwire asserts.

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“Compliance and security are not the same thing,” said Tim Erlin, director of IT security and risk strategy for Tripwire.

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“While many of these best practices are mandated by compliance standards, they are often implemented in a ‘check-the-box’ fashion.

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Addressing compliance alone may keep the auditor at bay, but it can also leave gaps that can allow criminals to gain a foothold in an organization.”

Check out more of the study’s findings below:

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Captive Growth Increases Need for Insurance-Experienced Board

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The current climate for captive insurers is gravitating toward encouraging captives—including single-parent, association and agent-owned—to appoint experienced, independent directors to their boards. Regulators (National Association of Insurance Commissioners and Bermuda Monetary Authority) and rating organizations (A.M. Best and Standard & Poor’s) have all come out in favor of the appointment of independent directors. They believe that independent directors add value by providing independent, experienced guidance to captive owners that is separate and distinct from a captive’s other advisers, including as managers, lawyers and accountants.

Their appointment could also help a company avoid a lawsuit. Independent directors do not have conflicts of interest, can provide experience that is different from others on the board and usually have a broad captive insurance perspective.

Another point worth considering is that some captive managers may have other interests, such as brokerages, reinsurance brokerages, actuarial, claims, asset investments. Some may even provide leads for a possible fee for premium financing. Furthermore, captive owners can mistakenly believe they get all the advice they need from their current advisers.

Independents on the Horizon

In the coming months, expect to see captive owners reaching out to independent directors, both because of their value-added consulting expertise and because regulators and possibly rating agencies will require it. This practice already exists in some overseas jurisdictions, and with Solvency II, it could become more important as it may ultimately apply here in the U.S.

What is often overlooked is the value-added experience independents offer. Here is a partial list of services normally expected of experienced independent directors:

  • Help in selecting the reinsurance interme­diary. They provide an independent per­spective separate from the reinsurance broker or risk manager.
  • Advise on acquisition opportunities of the captive, if any, such as buying a third-party administrator, a licensed admitted insur­ance company, or an investment in a new start-up retail brokerage firm. These sophis­ticated ideas are an expansion of most cap­tives’ business plans and need to be consid­ered carefully given the risks they present. Keep in mind, however, that the captive landscape from the 1970s is littered with the carcasses of captives that ventured ill-advised into such businesses.
  • Help in evaluating a reinsurance program’s structure and economics.
  • Attend and advise on the rating process with outside rating agencies, such as A.M. Best.
  • Attend meetings with insurance regulators, especially if there is a regulatory concern.

Independent directors are also asked to vote on many issues, including:

  • Should the captive change fronting companies?
  • Should the captive make a large dividend payment to the parent corporation, or should it return capital to its owners?
  • Should the captive write direct procure­ment policies for the parent corporation?
  • What law firm should handle uncollectible reinsurance?
  • Should the captive litigate or arbitrate certain claims?
  • Should it change asset investment managers?
  • Should the captive expand into other lines of business, such as writing third-party reinsurance business?
  • Should it move from an offshore domicile to a domestic domicile?
  • How can the captive reduce the cost of its reinsurance program?
  • How does a captive evaluate its various service providers?
  • What are the consequences of executing reinsurance or fronting agreements?