Legal and compliance issues keep today’s corporate executives up at night. Indeed, the concern that “regulatory changes and heightened regulatory scrutiny may affect the manner in which our products or services will be produced or delivered” was the No. 1 risk cited by a 2015 survey of 275 board members and executives by global consulting firm Proviti and the Poole College of Management at North Carolina State University.
Many of those evolving legal and compliance issues are swirling around the marketing space, where brands are blazing new paths, consumers and competitors alike are wielding new legal power, and regulators are working hard to keep pace with rapidly changing technologies and processes.
Here are six regulatory and legal risks that CMOs must understand and mitigate today.
1. Social Media Snafus: Educate The Masses
The rise of social media has been a boon to corporate marketing, but the immediacy of such platforms is fraught with legal risk.
“These types of activities, which are both immediate and involve a multiplicity of issues, don’t allow the kind of time to make sure that what is intended will comply with regulatory issues, third-party IP issues, or celebrity rights, for example,” said Ronald R. Urbach, co-chair of the advertising, marketing, and promotions practice at David & Gilbert. “At the same time, [social media posts] draw a tremendous amount of attention, and brands can become a target.”
|Actress Katherine Heigl sued Duane Reade for $6 million after the drug store used her photo in a tweet without permission.|
Last year, for example, actress Katherine Heigl sued drug store Duane Reade for $6 million after it posted a photo of her exiting one of its locations on its social media accounts. One seemingly innocuous tweet read: “Love a quick #DuaneReade run? Even @KatieHeigl can’t resist shopping #NYC’s favorite drugstore,” with a link to a paparazzi-shot photo of the former Grey’s Anatomy with the company’s bags in her hands.
But Heigl’s lawyers argued that Duane Reade violated her right to privacy and publicity with “unauthorized use, done knowingly and willfully, of [her] name, picture, image and likeness for commercial advertising ...”
The two parties ultimately settled, but the lesson? “Things that might seem harmless if you posted them to your personal social media accounts change in the business context,” Urbach said. And CMOs should consider the compounded risk with instant broadcast social media outlets, such as Periscope.
The solution is training and education. “You need to invest to make sure not only leaders and managers understand the risks, but everyone who’s dealing with social media does,” Urbach told CMO.com. “In the world of the immediate now, it’s the only thing you can do. Knowledge is critical.”
CMOs who outsource social media management to agencies aren’t in the clear, either. “CMOs talk to their general counsel and get these third parties to sign agreements, but that’s not sufficient,” Urbach explained. “The law makes it clear that CMOs are nonetheless responsible [when things go awry on social media], even if they’re not actively involved.”
2. Beware The Brand Ambassadors: Don’t Pay For Play
The U.S. Federal Trade Commission recently updated its endorsement guidelines to include social media. That could spell trouble for corporate marketers who are building armies of individual brand ambassadors on the Internet.
The FTC’s fundamental rule regarding endorsements is that they must be truthful and based on the endorser’s actual experience. “Endorsements cannot be used to make a claim that the advertiser could not legally make,” said John C. Norling, managing attorney with Jennings, Strouss & Salmon. “Most importantly, you must disclose any connection between the marketer and the endorser.”
Anything that might impact the credibility of a brand ambassador’s is a no-no. “The FTC is very concerned with advertisers who pay consumers to talk up their products and make it look like an independent consumer opinion,” Norling told CMO.com. “This is common in the blogging world.”
Endorsers must disclose any special relationships between themselves and the marketer of any product they promote—such as whether they are employees of, investors in, or relatives of those involved with the brand—and divulge whether they’ve received anything of value from the company.
3. Litigious Competitors: Know Your Corporate Tolerance
Companies are more likely to challenge their rivals using legal tools than ever before, and that’s OK, Urbach said. But CMOs need to factor in that likelihood when deciding whether to take on the competition in a marketing campaign.
It’s more than just a question of managing the legal fallout. “The big question is, ‘How will the CEO feel about it?’” Urbach said. At some companies, the chief executive might welcome the attention and attendant publicity of a corporate spat. Others don’t want to operate in that world.
“Understand your profile,” Urbach advised. “If the CEO is a pedal-to-the-metal entrepreneur who’ll be happy if you get sued tomorrow and end up all over the media, go ahead. If he or she will ask, ‘Who is the idiot who approved this?’ take a step back.”
CMOs need to understand intimately the corporate context. “The law is a tool that will be used in a world of intense competition,” Urbach said. “CMOs have to anticipate how their actions will play out.”
4. Digital Media Dollars: Follow The Money
More is being spent on digital than ever before, and that investment is rising exponentially. The advertising spend is second only to broadcast media, and will soon overtake it. However, “It is increasingly difficult to track the buys and know what is actually being paid,” said Douglas J. Wood, manager partner at Reed Smith and leader of the firm’s advertising and marketing practice. “In addition, there are allegations that agency buyers are receiving rebates and cash, space and time, or merchandise credits that are not being passed back to the client.”
What’s more, the ANA estimates that advertisers will lose approximately $6.3 billion globally this year to bots, which hijack browsers, blend in with human traffic, and falsely inflate revenue. Even if CMOs aren’t following the latest ANA directives, chances are their C-suites have caught wind of them. They know that their marketing organizations are spending millions in online advertising, and they wonder where it’s all going. “It’s gotten so much publicity that CFOs are putting their CMOs in the hot seat,” Urbach said.
Marketing executives need to stay abreast of initiatives by the ANA and others to address the challenges of the digital ad space. They also need to make sure their contracts provide billing transparency and specify that the advertiser will not pay for bot traffic or traffic directed to pirate sites,” Wood told CMO.com.
“CMOs must bring their media-buying agencies in as partners on these issues,” Urbach added. “They need the agencies to help them understand the issues and ensure that any potential problems are being addressed.” And, if they haven’t already, marketing leaders need to learn the language of finance. “It’s something CMOs must be articulate in today,” Urbach said.
5. The Rise Of Consumer Class Action: Count On It
CMOs know to pay attention to the FTC or the Consumer Product Safety Board. But there’s a new regulator in town: your customer. “The biggest threat to marketers is the rise of the consumer class action,” Urbach said. There’s big money to be had for lawyers in the class-action space who, say, identify a coupon that has been offered to 3 million consumers and is in violation of some law.
“It’s not necessarily about truth and justice,” Urbach said. “It’s about economics.”
Added Norling: “It is imperative to make sure that all information that could be material to a consumer’s decision-making process is disclosed in an advertisement. The form of the advertisement does not matter. The same rules apply to a traditional print ad as apply to a social media-based ad through You Tube, Twitter, or Facebook.”
|CMOs must budget for potential class-action suits, said Davis & Gilbert’s Ronald Urbach.
When making such disclosures, Norling said, CMOs should keep in mind the four Ps: the placement of the disclosure in the advertisement, the proximity of the disclosure information to the claim or offer, the prominence of the disclosed terms and conditions, and the presentation.
Marketers must also make sure they can substantiate all claims. “For example, if you are advertising a weight loss supplement, make sure that your claims of success can be substantiated by some empirical data,” Norling said. “You cannot use an example of someone who had tremendous results if those results are not typical. You may be able to use the tremendous results if you disclose the typical results that can be expected properly.”
Nonetheless, for most brands, it’s not if they will be hit by a class-action claim, but when. “They seem to come out of left field,“ Urbach said. “So CMOs have to budget in or at least think about their response to [potential class-action suits]. Most companies have at least one of these going on at any point in time. In areas like consumer packaged goods, it’s even more likely because they’re big targets.”
6. The Big Data Deluge: Get Smart
There’s more—and more specific—data available about customers and their behaviors than ever in history. “It’s the reality of the digital age,” Urbach said. And marketers can analyze that data to make their targeting efforts more efficient and personalized.
“Marketing used to be about storytelling,” Urbach said. “Now it’s about data. And it’s an area of extreme focus by regulators.” FTC Commissioner Julie Brill has a strong consumer protection background, is comfortable with technology, and is focused on customer questions about how their information is being collected, analyzed, and shared, he pointed out.
“CMOs need to be both aggressive in the marketplace but thoughtful about the issues,” Urbach said. While most marketing organizations are analyzing customer data in bad faith, but they can easily be tripped up in an evolving and intensive regulatory environment. Those in the CMO role need to have a good working knowledge of data collection and analysis, along with security and privacy regulations.
“This is a new skill set,” Urbach said. They also need to be transparent with customers about their data programs and protections, giving individuals not simply the ability to opt out, but require that they opt in to data collection programs.