David Jacobson's External Insights

George Soros on the market crisis

This Financial Times article by funds manager George Soros has some interesting background and comments including the following:

The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.

Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market. Investment banks’ commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of institutions than ever before. That made the crisis more severe than any since the second world war.

The risk of data breaches

As we store more information electronically, the importance of keeping data secure grows.

It's not just a risk from hackers or viruses. The breach could be as simple as leaving your notebook or flash drive in the wrong place.

The top 10 data breaches of 2007

The effect of your employees on your business relationships

Whilst your employees can be excellent advocates for your business, it is equally possible for them to unwittingly disrupt important business relationships.

In The Blog Post I Didn't Publish - Will Your Employees Do the Same? Daniel Scwartz asks : "Will those employees use discretion in their posts? In other words, even when they do not post about the company that they work at, will they decide to NOT blog about an employer's competitors or customers?  Do they even THINK about the effect their blog will have on their employer?"

He reflects on a blog post he didn't publish because he "decided that it was better to not publish it and preserve relationships that the firm has with clients and customers than risk jeopardizing the relationship (even though I have nothing to do with that relationship). "

Whilst you can have extensive policies, ultimately it is a question of common sense: think about what you say, where you say it and who it can effect.

What do your employees think?

It's often said that a business's best marketers are its employees (and conversely unhappy employees result in bad service).

In a time when we have technological social networking tools are you giving your staff the opportunity and encouragement to publicly talk about your business? Are you monitoring what's being said about your business online?

Here's what happened when an employee of Lloyds TSB (a UK bank) read critical reviews of her employer:  she posted a write-up about the trials and tribulations of being a bank cashier and ended with this:

Why do I stay - I enjoy the job, the staff and regular customers are lovely. The bank are very flexible regarding part-time work,maternity arrangements and are understanding regarding kids being ill swapping days around etc. I suppose they need to keep the dedicated workforce happy,as at lower levels it mainly consists of part-time women...

I'm not sure how long there will be traditional large banking organisations. With the increase of internet banks, telephone banks and supermarket banking. I believe their only chance of survival is to provide outstanding customer service. So far they haven't been getting it right. My impression is they have now recognised the need to change and hopefully things will improve for the better.

This clearly shows an employee acting as advocate and the importance of not undervaluing your frontline staff. (via Bankwatch)

If you want to know what's being said about you online, sign up for Google Alerts.

Copying other people's designs: recent cases

Businesses invest a lot of time and money in research and development of new ideas, products and designs. And the law of intellectual property (including copyright, trade marks and designs) acknowledges rights in the design products of such investment in certain circumstances.
(see IP Australia)

Here are some recent cases relating to copying designs:

• copying house designs (Barrett Group v Metricon Homes)
• copying yacht designs (Burge v Swarbrick)
• copying air conditioner designs (Polyaire v K-Aire)

The Chaser: irresponsible or just irreverent?

Australians love a good laugh, especially if it is at someone else's expense or it takes the "mickey" out of someone (Americans call it a "public gotcha").

So when APEC (Asia-Pacific Economic Cooperation Forum) came to Sydney last week and ran up a AU$180 million security bill for 21 country leaders (including Presidents Bush, Putin and Hu) and resulted in central Sydney being walled off to public access, The Chaser team had to see how good the security was.

The problem is that they surprised everyone, including themselves, by getting past 2 checkpoints into a restricted zone.

Their version is that they gave themselves up in embarrassment at their fake motorcade having gotten so far...particularly when their passes were marked "Joke", their motorbikes had "Mufti" nameplates and their passenger was dressed up as Osama Bin Laden.

Was it bad taste? Stupid? Or incredibly funny?

Their video has scored top ratings around the world.

And they're due to appear in court in October charged with entering a restricted area without justification.

The C7 case: mega-litigation and business reputation

In Seven Network Limited v News Limited [2007] FCA 1062, Channel 7 lost a long-running and expensive court case which alleged anti-competitive conduct against its former partners in a media venture.

The noteworthy feature is the effort that the trial judge (Judge Sackville) went to in describing the process of the litigation and its cost:

The case is an example of what is best described as ‘mega-litigation’.  By that expression, I mean civil litigation, usually involving multiple and separately represented parties, that consumes many months of court time and generates vast quantities of documentation in paper or electronic form.  An invariable characteristic of mega-litigation is that it imposes a very large burden, not only on the parties, but on the court system and, through that system, the community...

The trial lasted for 120 hearing days and took place in an electronic courtroom.  Electronic trials have many advantages, but reducing the amount of documentation produced or relied on by the parties is not one of them.  The outcome of the processes of discovery and production of documents in this case was an electronic database containing 85,653 documents, comprising 589,392 pages.

Apart from losing the case (and a likely huge costs order against it), the judge was critical of Seven ("there is more than a hint of hypocrisy in certain of Seven’s contentions" (Para 157)), its CEO, its counsel and the general conduct of the case. (He also complained about other parties'  executives, witnesses and document retention issues).

All in all, it shows that once litigation starts, you're never really sure where it's going to end up. The judge refers to the Duke case which had multiple appeals.

Protecting your business reputation against defamation: the Coco Roco restaurant review

In John Fairfax Publications Pty Ltd v Gacic [2007] HCA 28 14 June 2007, the High Court of Australia rejected an appeal by the publishers of the Sydney Morning Herald against a finding by the NSW Court of Appeal that a review of the Coco Roco restaurant was defamatory by imputing that the restaurant sells unpalatable food  and that the restaurant provides some bad service. The original trial jury decided the review was not defamatory.

Paragraph 161 of the judgment sets out the review  in full (headed Crash and Burn: When dining on the view is the only recommendation).

After the review the restaurant closed and the owners suffered significant losses.

The point of this note is not that restaurant reviewers can be successfully sued but that defamation offers a source of redress for business owners (although an admittedly expensive one).

To quote Gleeson CJ And Crennan J:

The case concerns that form of defamation which involves injury to business reputation, that is, the publication of imputations that have a tendency to injure a person in his or her business, trade, or profession. That the law of defamation affords such protection is not surprising. Suppose someone says: "X is a thoroughly decent person, but he is showing signs of age; his eyesight is poor, and his hands tremble". That would not be a reflection on X's character. It would be likely to evoke sympathy rather than hatred, ridicule or contempt. If, however, X were a surgeon, the statement could be damaging. To say that someone is a good person, but a dangerously incompetent surgeon, is clearly likely to injure the person's professional reputation. That is an established form of defamation, and it was not called in question by the parties to the present appeal. 

What if you googled a job applicant and found out something?

What if you found out something about a job applicant (or even a current employee) on the internet? How would you use that information?

Harvard Business Review has published its first-ever HBR Interactive Case Study. The case, which is fictional, deals with what a company CEO should do when he discovers (via his HR manager's Google search) that his preferred candidate for managing his first China branch, was convicted 8 years ago for protesting over China's treatment of a dissident journalist .

HBR will publish the best submissions online after the case “closes” on June 15, 2007. But you can see a selection here. What would you do?

Keeping information secure

Stories appear everyday about the loss of information by businesses or government agencies.

Such stories usually fall into 3 categories:

• loss of a computer or hard drive (eg this story on the Transportation Security Administration loss of a computer hard drive containing Social Security numbers, bank data and payroll information for about 100,000 employee records.)
• unlawful access to a network (eg this story on a breach of TJX's wireless network with access given to 45.7m credit and debit card numbers and personal information relating to almost 500,000 people.)
• concern about employees downloading data (eg this story aboutconcern about security risks of "thumb drives".)

How secure is your business?