Saturday, August 16, 2014

Privacy, Big Data, Security and Consumers

Privacy is a hot-button issue today. With a raging war for the private data of the average consumer in full gear, there is a growing cleavage along the privacy Maginot line.
On one side are marketers, advertisers, Internet and data companies, who want unfettered access to as much personal information as possible. On the other side are a confederation of consumer advocates, privacy purists and think tanks that want to limit or disallow commercial access to personal data, altogether.
 In the middle are consumers, who mostly want to keep getting as much free online stuff as possible, but who are clueless about the cost of compromised privacy. At stake are billions of dollars in advertising revenue and profits from the warehousing of rich consumer data, which are dearly valued by retailers selling everything from cars to computers.
Today, privacy has moved from the playbook of shrill consumer activists to the pinnacle of the policy agenda. In Washington, the issue has spawned countless conferences, debates and organizations devoted to finding a solution. Congress and regulatory agencies appear to be baffled by divergent paths forward.
“Big data” has made its way into the popular lexicon. We have seen the global fallout when massive databases are hacked or compromised, and recently witnessed the government’s authority to compel Internet companies to share or surrender their closely held consumer data. Yet, even as new revelations unfold on the fragility and security of data, most Americans are lost in the cloud(s) when it comes to their online personal privacy.
In this case, Google's decision to report criminal activity to the National Center for Missing and Exploited Children led to a societal outcome that trumps privacy, any day.
Internet companies have been trying, somewhat in vain, to reassure consumers that privacy is paramount, recently arguing against mandatory privacy restrictions in favor of voluntary commitments. The advertising industry has launched an ambitious self-regulatory regimen to govern online behavioral advertising practices, and consumers are now empowered to search the web anonymously, and opt out of almost all online tracking.
We live now in a world where security reigns supreme. In the 13 years since Sept. 11, 2001, most Americans have embraced the government’s right and responsibility to thwart terrorism through advanced surveillance. We also have accepted — albeit grudgingly — government’s right to collect private information on anyone, including a national registry of suspicious citizens, organizations and events. With limited constitutional restraint, the courts have balanced this power by presuming such data collection is in the interest of national security and inures to the greater good. On that there should be little discord, Edward Snowden notwithstanding.
For many citizens today, though, the main concern is no longer government intrusion, but the compilation of data by private concerns--"Big Brother" by another name. In a world where "the Internet of things" is an emerging reality, the challenge for policymakers is to develop a set of rules that balance the consumer’s right to privacy against the marketer’s well-established, constitutionally protected, right to commercial speech. They also should determine whether corporations, like government, have an unencumbered right to collect, store, manipulate and otherwise use, our individual personal data.
When consumers blithely consent to let Google, Facebook and others collect their personally identifiable information as a condition of free and continued use, a social contract is formed and the veneer of privacy fades. There is scant evidence that most Americans know the true cost or character of the private information they relinquish in an ostensibly fair exchange of data for service. That certainly seems true for Millennials, including those in my own household.
As a society, we have evolved to a point where erstwhile concerns of the government as Big Brother seem almost quaint. Government collection of information has been legitimized by real world terror. Not so much when it comes to private actors--until now.
To be clear, I believe most companies are careful and responsible when it comes to the respect and protection of consumer privacy. Were it not so, the market would soon exact its due. But we must acknowledge there is problem with the lack of clear rules. In their absence, neither consumers nor commercial entities can predict what is in, or out of, bounds.
And no matter what your views on privacy, that kind of unsettled uncertainty is not good for business under any circumstances.
(c) Adonis E. Hoffman, 2014

Monday, July 15, 2013

What is Responsible Business Conduct, Anyway?

In the face of widespread corporate scandals on Wall Street, President George Bush ushered in what he called a "new era of corporate responsibility." Of course, the president's message accompanied the passage of Sarbanes-Oxley, along with a spate of regulation designed to compel more transparency into the practices of financial services companies.

Today, those practices are governed by the sweeping Dodd-Frank Wall Street Reform Act (Dodd-Frank), which established the Consumer Financial Protection Bureau (CFPB).

Mr. Hoffman discusses the sweeping
 implications of Dodd-Frank legislation
with Sen. Chris Dodd in Washington 
And it is that very CFPB which has set out to define and determine, what constitutes responsible business conduct--at least with respect to the behavior it is authorized to enforce.  Thus, in late June 2013, the CFPB issued the following guidance for all to behold and abide by:

This concept, which can also be described as self-monitoring or self-auditing, reflects a proactive commitment by a party to use resources for the prevention and early detection of potential violations of consumer financial laws. 

While no substitute for effective self-policing, self-reporting substantially advances the Bureau’s protection of consumers and enhances its enforcement mission by reducing the resources it must expend to identify potential or actual violations that are significant enough to warrant an enforcement investigation and making those resources available for other significant matters. Prompt self-reporting of serious violations also represents concrete evidence of a party’s commitment to responsibly address the conduct at issue.

When violations of federal consumer financial laws have occurred, the Bureau’s remedial priorities include obtaining full redress for those injured by the violations, ensuring that the party who violated the law implements measures designed to prevent the violations from recurring, and, when appropriate, effectuating changes in the party’s future conduct for the protection and/or benefit of consumers. Remediation may be viewed positively even when the party believes that it may have identified a potential rather than an actual violation. 

Unlike self-policing and remediation, which may occur with or without Bureau involvement, cooperation relates to the quality of a party’s interactions with the Bureau after the Bureau becomes aware of a potential violation of federal consumer financial laws, either through a party’s self-reporting or the Bureau’s own discovery efforts. In order to receive credit for cooperation in this context, a party must take substantial and material steps above and beyond what the law requires in its interactions with the Bureau. Simply meeting those obligations will not be rewarded by any special consideration.

Following these steps will help the CFPB determine the level of responsibility a company has adopted, and accordingly can help the agency mitigate practices harmful to consumers.

Tuesday, June 18, 2013

Data, Consumer Privacy and PRISM

The major aggregators of consumer data, including Google, Apple, Microsoft, Facebook, and even Twitter all have come under intense pressure to explain publicly how they have cooperated  with the federal government's request for access to consumer data pursuant to the PRISM program.

PRISM is a clandestine, national security electronic surveillance program operated by the National Security Agency (NSA) since 2007.  It involves massive and widespread data collection by a complex web of government agencies and private companies, and is supervised by the Foreign Intelligence Surveillance Court under the Foreign Intelligence Surveillance Act (FISA).  The program was not widely known until Edward Snowden, an NSA contractor, leaked it, and its existence was published in The Guardian and The Washington Post on June 6, 2013

While the late night comedians have had loads of fun with the PRISM program, the implications are no laughing matter.  Americans can no longer expect any real measure of true privacy from either government or private companies.  In short, national security trumps consumer privacy any and every day.  At least that is the state of the law now, until the Supreme Court weighs in. . . and it is just a matter of time before the Court weighs in on the constitutionality of it all.  And if you are expecting the program to be overturned, I would not bet against it.

When asked by the New York Times what I thought, my advice to those companies who were asked to provide data is they should do everything possible to reassure consumers that privacy will be respected at all costs -- except when national security is involved.

(c) 2013 Adonis Hoffman

Thursday, May 30, 2013

Quality and Transparency Help Corporate Reputation

Not surprisingly, the more open and trustworthy a company is, the better its reputation. According to an annual survey, only 45% of Americans trust business. This is a decline from previous years where more than half of Americans had greater faith in the corporate sector. The proliferation of negative news reports and the availability of more information on the activities of big corporations, apparently are contributing factors.

With the advent of "information ubiquity", the primary way a company can maintain or improve its sterling corporate reputation is to provide quality, become more transparent, ensure employee welfare, and be more trustworthy. Of course, this mandates more, not less, communication across various platforms for CEOs and other business leaders.

In the U.S. 85% of "informed publics" aged 25-64 believe corporations should create shareholder value in a way that aligns with society’s interests, even if that means sacrificing shareholder value. Another 61% believe government should regulate corporations’ activities to ensure business behaves responsibly. The U.S. is surpassed only by Germany, the U.K., Ireland and China in these opinions. For much greater detail, check out the Edelman Trust Barometer, a fascinating study of how well-informed people across the world feel about business.

Tuesday, February 19, 2013

Governance Challenges for Today's Board of Directors

In a recent McKinsey Quarterly article, William George, a former CEO of Medtronic, and a veteran of ten corporate boards, reflected on common governance pitfalls and how to overcome them. McKinsey Quarterly 1Q 2013

The recommendations offered by Professor George are valuable given his wealth of experience in key roles as a director with leading companies.

I especially appreciate the advice to independent directors to step outside their own spheres of influence to learn more about the business or industry of the company. Of course, this is often easier said than done, given time demands and the speed at which business happens and board decisions must be made, but it invariably will make those directors function more efficiently, and will deepen their commitment to the duty of care expected of all directors.
One area Professor George neglected to mention, but I consider important, is the board’s interaction with outside advisors. Outsiders can be instrumental in prudent board decision-making, especially in pre-IPO or pre-merger deliberations, times of crisis, on compensation matters, and even on succession planning. How directors deal with the advice and strategies presented by these external experts often determines success or failure of the task(s) at hand.
Finally, no review of governance or board performance would be complete without some discussion of the value of including diverse directors in the boardroom. Here, I am referring to ethnic diversity, which continues to be an oft-cited, yet elusive, aspiration for most corporations. Companies, especially those which are consumer-facing, should be guided by the evolving demographic landscape of North America, and indeed the globe, which reveals a preponderance of consumers of color. In addition, our global economy has spawned a new set of corporate expectations. Companies operating internationally should be acutely aware that the totality of their corporate activities are viewed through a new prism—a prism with such facets as human rights, environmental stewardship, fair labor, diversity, inclusion, and sustainability, among other corporate responsibility indicators.
Embracing these new market realities and societal mandates through enlightened corporate policy is both a beacon and a benchmark of responsible companies.
These decisions, rightfully, begin and end with the board. Leading CEOs understand the inter-relationship between the new realities and the advancement of shareholder value, and seek directors who can credibly balance these often competing interests.
(c) 2013.  Adonis E. Hoffman

Wednesday, October 10, 2012

Huawei On Wrong Side of U.S. - China Divide

The United States has nothing to gain from trumping up illegal spying charges against Huawei.  Political logic suggests that a high-profile commercial spying allegation is no way to win friends and influence people in Beijing, especially when the U.S. - China trade relationship is way out of balance.  Thus, there must be some truth to the case against Huawei, the behemoth Chinese telecom gear maker that is currently under fire from American policymakers.  Huawei did nearly $1.7 billion in business in the U.S. alone last year, and wants to do more.  These charges, along with the corresponding investigation by Congress, the FBI and the Committee on Foreign Investment in the U.S. (CFIUS) do not bode well for Huawei's American plans.  Speculation about bribery only compound the alleged threats to national security. If there is anything to be salvaged from this matter, it is that surreptitious business practices should not be welcome in any country--East or West.

Monday, October 01, 2012

Everybody's Going Green

"Environmentally-friendly."  "Organically-grown." "Safe for the environment. " "Green."

We all have seen the labels of goods and products claiming to be environmentally correct. It is impossible to engage the consumer marketplace today without encountering these bold statements from marketers and manufacturers about the "green" nature of their wares.  They often lead the commercial messages. Despite the proliferation of green marketing claims that permeate the media, the standard for green products has been a somewhat ambiguous sliding scale for years.

Today, the Federal Trade Commission (FTC) has stepped in to issue a revised set of guidelines for companies making environmental claims.  The revised guidelines are there to make sure the claims are truthful and substantiated, and backed up by legitimate science and tests.  While this might add an extra layer of unwanted regulatory compliance on these companies, the guidelines ultimately help consumers from getting duped by dubious achievements.

Since the advent of the Sustainability Revolution, consumers have shown their preference for environmentally friendly products.  This extends to everything from coffee, fruits and vegetables, to cotton, wool, poultry, paper and petroleum. As a society, we want to be in as close harmony as possible to our environment without spoiling it.  And, it appears, many consumers are willing to pay a little bit more for the "Green".

By laying out the boundaries for what can and cannot be considered environmental friendly, the FTC may have marked the end of those claims that seem to stretch the bounds of credulity.  Oil and gas extraction--environmentally friendly?  Hmmm.

(c) copyright 2012.  Adonis Hoffman.  All rights reserved

Monday, September 10, 2012

Hard Assets On The Line

Glencore, the world's largest commodity trader,  is seeking to merge with Xstrata, a global leader in coal and mining, to form a post-merger company to be valued at nearly $90 billion.  Latest bid .  The proposed merger would become the biggest deal of the year, involving (literally) tons of hard assets.  When we consider the magnitude and impact of this deal, it is hard not to look askance at the other big deal of the year--Facebook.  There, hard assets were tough to quantify in the face of massive valuation estimates. No such problem here, as Glencore's reach expands to aluminum, coal, sugar, grains, and crude oil.  It could not be more brick and mortar.

I don't know what Xstrata's record is on the environment, labor, or human rights.  But as putative partners in one of the biggest mergers of the year, both Glencore and Xstrata might want to shore up their compliance on non-financial matters, which are always problematic in the commodities and extractive sectors. Glencore's IPO was the largest ever on the premium listing of the London Stock Exchange, and this deal will make it an even higher profile target for activists. Plus, the company's provenance as a spin-off from Marc Rich & Company increases its mystique quotient.  A few smart steps by CEO Ivan Glasenberg today can bring reputational, as well as financial, success for the new company going forward tomorrow.

--Adonis Hoffman is a corporate advisor, professor and attorney in Washington, DC. He is the author of Doing Good--The New Rules of Corporate Responsibility, Conscience and Character.

Wednesday, July 18, 2012

Nelson Mandela -- The Epitome of Leadership

Happy Birthday, Nelson Mandela.  A lawyer. A lion. A legacy. A leader.

It was an honor and privilege to have worked with you at the ANC headquarters in Johannesburg in 1991.

God bless you, and many more years to come.

Wednesday, April 04, 2012

Entertainment, Entrepreneurs and Leadership

Popular culture is driven by celebrity.  Multi-billion dollar industries have spawned to feed the public's insatiable appetite for increasing amounts of celebrity news, gossip, reality and lifestyle.  It dawned on me after reading a short piece on 10 Rock Stars Who are Brilliant Business People that it takes a lot of talent and creativity to be a top entertainer, but it takes something more to be a successful business person in the entertainment industry.  Jay-Z, Madonna, and many other stars can lend valuable lessons to corporate executives on business essentials such as branding, marketing and customer relationship management.  Of course, for all of their business success, many entertainers can still learn a lesson or two about leadership and corporate responsibility, as I point out in Doing Good: The New Rules of Corporate Responsibility.  Maybe that is where the business sector can make a lasting contribution well beyond the bottom line.