Business Law Prof Blog

Victoria's Secret: The Song and the Business

Posting something light tonight . . . .

I have found myself fascinated listening to Jax's recent hit "Victoria's Secret," a clever pop ballad about female body image concerns and intimates retailer Victoria's Secret.  The refrain is catchy and, itself, tells a story--a business story.

I know Victoria's secret
And, girl, you wouldn't believe
She's an old man who lives in Ohio
Making money off of girls like me"
Cashin' in on body issues
Sellin' skin and bones with big boobs
I know Victoria's secret
She was made up by a dude (dude)
Victoria was made up by a dude (dude)
Victoria was made up by a dude

Because I knew some of the history of the Victoria's Secret business, I understood that the allusion to the "old man who lives in Ohio"--the "dude"--is a reference to Leslie Wexner, the founder of L Brands (earlier famous for owning major brands like The Limited, Express, and Abercrombie & Fitch, as well as Victoria's Secret).  Victoria's Secret became an independent publicly traded firm, Victoria's Secret & Co., last year through a tax-free spin-off from L Brands (now known as Bath & Body Works, Inc.).  From the Victoria's Secret & Co. website:

On August 3, 2021, L Brands (NYSE: LB) completed the separation of the Victoria’s Secret business into an independent, public company through a tax-free spin-off to L Brands shareholders. The new company, named Victoria’s Secret & Co., includes Victoria’s Secret Lingerie, PINK and Victoria’s Secret Beauty. Victoria’s Secret & Co. is a NYSE listed company trading under the ticker symbol VSCO.

In conjunction with this announcement, L Brands changed its name to Bath & Body Works, Inc. and now trades under the ticker symbol BBWI.

According to (among other sources) a Newsweek piece from last summer, Wexner did not found Victoria's Secret.  He bought it in 1982 from the founder.  However, he did elevate the brand to cult status and financial success.  So, one might say that he did "make up" Victoria (as she is conceptualized in the song's lyrics). 

Having said that, it also seems fair to note that Ed Razek, long-time L Brands chief marketing officer, is credited (in that same Newsweek article) with overseeing the iconic Victoria's Secret fashion shows that ran from 1995 to 2018.  In the minds of many, these fashion shows created--or at least popularized--the image of the Victoria in Jax's lyrics ("skin and bones with big boobs").

Victoria's Secret & Co. has been working to change its image.  Its website includes value statements consistent with greater inclusion and features some photos of nontraditional intimates models--models that are not reflective of the Victoria described in the "Victoria's Secret" song lyrics.  Moreover, the Victoria's Secret & Co. CEO reportedly reached out to Jax to thank her for highlighting body image issues through her song.

With the craziness of current business stories, grading, and the holiday season, this post is designed to offer some amusement (if not educational value).  I have endeavored to ensure that BLPB readers now know Victoria's Secret--the company--a bit better.  I also hope you enjoy the Jax song and appreciate its encouragement of positive body image.

Paper from Prof. Haneman: Menstrual Capitalism, Period Poverty, and the Role of the B Corporation

My friend and colleague Prof. Victoria Haneman has shared her paper, Menstrual Capitalism, Period Poverty, and the Role of the B Corporation.  Here is the abstract: 

A menstruation industrial complex has arisen to profit from the monthly clean-up of uterine waste, and it is interesting to consider the way in which period poverty and menstrual capitalism are opposite sides of the same coin. Given that the average woman will dispose of 200 to 300 pounds of “pads, plugs and applicators” in her lifetime and menstruate for an average of thirty-eight years, this is a marketplace with substantial profit to be reaped even from the marginalized poor. As consciousness of issues such as period poverty and structural gender inequality increases, menstrual marketing has evolved and gradually started to “go woke” through messaging that may or may not be genuine. Companies are profit-seeking and the woke-washing of advertising, or messaging designed to appeal to progressively-oriented sentimentality, is a legitimate concern. Authenticity matters to those consumers who would like to distinguish genuine brand activism from appropriating marketing, but few objective approaches are available to assess authentic commitment.

This Essay considers the profit to be made in virtue signaling solely for the purpose of attracting customers and driving sales: pro-female, woke menstruation messaging that may merely be an exploitative and empty co-optation. Feminists should be expecting more of menstrual capitalists, including a commitment that firms operating within this space address the diapositive issue of period poverty, one of the most easily solved but rarely discussed public health crisis of our time, and meaningfully assist those unable to meet basic hygiene needs who may never be direct consumers. This Essay serves as a thought piece to explore the idea of B Corporation certification as an implicit sorting device to distinguish hollow virtue signaling from those menstrual capitalists committed to socially responsible pro-womxn business practices.

It is well-known that I am not fond of benefit corporation statutes, but given that they are a thing (along with B Corp certification), we have to deal with them.  I still feel strongly that they benefit entity type, as it currently exists, is not helpful and potentially counterproductive.  And I really don't like that B Corp certification has moved to include mandating entity type.  But that's just facts, for now, anyway.  

My opposition to benefit entities, though, is not anti-signaling by an entity of their values, and there's little doubt in my mind that a benefit entity (if it must exist) certainly makes sense for nonprofits (thought I still think the nonprofit thing told us all we needed to know).  We're stuck with benefit entities, so Professor Haneman is probably correct that choosing the entity type could have value in marketing and signaling to consumers shared values.  I still think companies should signal through acts, not entity choice, and that all entity types should have the latitude to do such signaling. But in the world we live in, this just may be how it is.  Regardless, I recommend taking a look -- even when I disagree, Professor Haneman is always thoughtful, smart, and entertaining.  

Delegation of Board Authority: Nike's Kaepernick Ad Remains the Most Business Judgmenty Thing Ever

Last week, I made the argument that Nike's Kaepernick Ad Is the Most Business Judgmenty Thing Ever.  I still think so.  

To build on that post (in part based on good comments I received on that post), I think it is worth exploring that ability and appropriateness of boards delegating certain duties, as this impacts any assessment of the business judgment rule. 

As co-blogger Stefan Padfield correctly noted, directors "become informed of all material information reasonably available." However, does that apply to a particular ad campaign? Hiring of all spokespeople? Only certain ones? How about a particular ad?  Or is it the hiring of a marketing and ad team (internally or externally)? 

Nike has a long list of sponsorship (here) for teams and individuals. I sincerely doubt that all of those were run by the board of directors, though it is possible.  The board may also weigh in from time to time, based on the behavior of the people they sponsor.  Nike famously terminated contracts with Oscar Pistorius and Ray Rice in September 2014. Are these all board decisions? Maybe. Or maybe they have a protocol for dealing with such issues. Regardless, how they deal with this seems plainly within the BJR.  

Now, I also would agree that there comes a time when the board would need to do more with regard to their advertising and sponsorships, if they were on notice of a problem with their sponsored athletes, not unlike a Caremark duty or its predecessor. In discussing the applicability of the business judgment rule, an older, but classic, Delaware case stated, “it appears that directors are entitled to rely on the honesty and integrity of their subordinates until something occurs to put them on suspicion that something is wrong. If such occurs and goes unheeded, [only] then liability of the directors might well follow . . . “ Graham v. Allis-Chalmers Mfg. Co., 41 Del. Ch. 78, 85, 188 A.2d 125, 130 (1963). 

When I started to write this, I did not know if Nike's board of directors saw this ad before it went out (more on that below). I expect they did (or at least knew about it), but I'm not sure.  Even it if the ad were raised with the board for informational purposes, trusting the judgment and recommendation of your marketing executives seems imminently reasonable to me. It seems to me that how the board chooses to work with their marketing people fall plainly under the business judgment rule (BJR) unless shareholders can rebut the presumption that the BJR applies.  It's not like marketing mistakes are not common. Most years there are recap articles about the works gaffes in marketing for the year. This one from 2017 is a particularly good example, and I don't think any of them would be likely to lead to director liability.  

The scope and power of board delegation of such duties would be a good topic for further research. I certainly concede that there are times when such decisions look more like board decisions that require an appropriate process and perhaps some demonstration of due care.  Maybe that goes to a need to review ads with certain risk factors, but you'd still have to delegate the decision about what needs to come to the board to someone.  And do you need such a process absent notice that your ad folks are taking enormous risks?  Is this a Caremark/Allis-Chalmers issue? Or could negligent hiring be the failure, if the ad folks are insane? 

Support for my assumptions, and for the idea that Nike, at least, views this as a delegation question, arrived in this breaking news from CNBC, which appeared as I was writing this blog post:  

Nike director Beth Comstock said Tuesday that the sports apparel giant's management and CEO Mark Parker informed the board about the controversial Colin Kaepernick ad before it was released.

But Comstock, also a former vice chair of General Electric, said Parker didn't need the board's permission before running a "Just Do It" campaign featuring the former San Francisco 49ers quarterback.

"Parker runs the company really well," Comstock said on CNBC's "Squawk on the Street," while also commenting about the new China tariffs. Parker "certainly doesn't need board approval to figure out where to run an ad," she added.

In the end, we know marketing decisions can harm stock prices, but we also know risky marketing decisions can improve stock prices.  That very fact, I maintain, puts this decision squarely in the BJR zone.  

Nike's Kaepernick Ad Is the Most Business Judgmenty Thing Ever

On Sept. 4, it was reported 

Nike just lost about $3.75 billion in market cap after announcing free agent NFL quarterback Colin Kaepernick as the new face of its “Just Do It” ad campaign. It’s the 30th anniversary of the iconic TV and print spots.

At the time of this writing, the sneaker company’s intra-day market capitalization was $127.82 billion. On Friday, that number had been $131.57 billion.

Market capitalization is the market value of a publicly traded company’s outstanding shares.

Shares of NKE stock dropped about 4 percent on Tuesday morning, as #NikeBoycott has been trending on Twitter. The company’s valuation has since recovered a bit.

In light of the market cap loss, friend and co-blogger Stefan Padfield asked, via Twitter, "How much & what kind of information regarding projected backlash losses did Nike need to review in order to satisfy its duty of care to shareholders here?" My answer: very, very little and very, very limited.  

How much & what kind of information regarding projected backlash losses did Nike need to review in order to satisfy its duty of care to shareholders here? "Nike Loses $3.75 Billion in Market Cap After Colin Kaepernick Named Face of 'Just Do It'" https://t.co/UIuZanOUon #corpgov

— Stefan Padfield (@ProfPadfield) September 6, 2018

Now, it is worth noting that here it is Sept. 13, and as I write this, Nike is at or near its 52-week high. As such, the question is less pressing than it may have seemed a week ago.  But even then, I maintain, this is not really even in the realm of a duty of care concern. Or, at least, it shouldn't be. (Also of potential interest, friend and co-blogger Ann Lipton provides a good overview of the varying takes on the ad here. 

A while back I wrote, This I Believe: On Corporate Purpose and the Business Judgment Rule, which provided my thoughts on how director )ecision making should be viewed (short answer: "I believe in the theory of Director Primacy").  The business judgment rule provides that absent fraud, self-dealing or illegality, directors decisions cannot be reviewed. "Courts do not measure, weigh or quantify directors’ judgments. We do not even decide if they are reasonable in this context. Due care in the decisionmaking context is process due care only. Irrationality is the outer limit of the business judgment rule." Brehm v Eisner, 746 A.2d 244 (Del. 2000)(emphasis added)(footnote omitted).     

Under this lens, regardless of the market cap impact, Nike's advertising falls within the scope of the business judgment rule. Did the board even know this ad was coming out? I don't know.  Probably. But I also think it is clearly proper for the board to delegate duties to CEO to handle day-to-day operations. And it is customary and proper for that CEO to delegate to a marketing VP and/or marketing agency the role of designing and placing advertising. Could the CEO and/or marketing VP get fired for their choices? Sure. Or they could get bonuses. Either way, that would be the call of the directors.  

I can come up with lots of reasons why Nike should not have done that ad, and I can come up with a lot of good reasons why it makes sense.  The biggest reason it makes sense? Nike knows marketing.  They won't get everything right, but they have been taking calculated risks for a long time. In 1992, the Harvard Business Review noted that

in the mid-1980s, Nike lost its footing, and the company was forced to make a subtle but important shift. Instead of putting the product on center stage, it put the consumer in the spotlight and the brand under a microscope—in short, it learned to be marketing oriented. Since then, Nike has resumed its domination of the athletic shoe industry. It commands 29% of the market, and sales for fiscal 1991 topped $3 billion.

Phil Knight, Nike founder, futher explained how Nike looked at using famous athletes:

The trick is to get athletes who not only can win but can stir up emotion. We want someone the public is going to love or hate, not just the leading scorer. Jack Nicklaus was a better golfer than Arnold Palmer, but Palmer was the better endorsement because of his personality.

To create a lasting emotional tie with consumers, we use the athletes repeatedly throughout their careers and present them as whole people. So consumers feel that they know them. It’s not just Charles Barkley saying buy Nike shoes, it’s seeing who Charles Barkley is—and knowing that he’s going to punch you in the nose. We take the time to understand our athletes, and we have to build long-term relationships with them. Those relationships go beyond any financial transactions. John McEnroe and Joan Benoit wear our shoes everyday, but it’s not the contract. We like them and they like us. We win their hearts as well as their feet.

Read in this light, it all makes sense. This is part of Nike's plan, and it always has been. Presumably, they expect that any business they lose because consumers are upset by the ads will be made up and then some by creating a "lasting emotional tie with consumers."  That is, creating what we might call brand loyalty.

Not that is should matter to a court. While these explanations may be correct, they aren't necessary.  The business judgment rule exists to allow companies, via their directors, to take these kinds of risks. It's how you create companies like Nike (and Apple, for that matter). And that's why there should be no question that this ad is beyond the scope of review, not matter how the public responds. If consumers don't like it, they can buy other products. If shareholders don't like it, they can vote the board out.  And that's it.  That's the recourse. It just doesn't get much more "business judgmenty" than who you pick for your ads.  And that's exactly how it should be.  

How 18 Words from A Kardashian Cost a Company Over A Billion Dollars

I love the Kardashians. I don't watch the reality show, but I do keep up with them because I use them in hypotheticals in class and in exams for entity selection questions. The students roll their eyes, but invariably most of them admit to knowing everything about them. When the students can relate to the topic, it makes my job easier. That's why I used the SNAP IPO last year as our case study on basic securities law. Every year I pick a "hot" offering to go through some of the key principles and documents, and Snap was the logical choice because the vast majority of the students love(d) the Snapchat app. The company explained as its first risk factor "... the majority of our users are 18-34 years old. This demographic may be less brand loyal and more likely to follow trends than other demographics. These factors may lead users to switch to another product, which would negatively affect our user retention, growth, and engagement." I used myself as an example to explain that risk factor in class. I have over 100 apps on my smartphone, and I have a son in the target demographic, but I  never open Snapchat unless my six-year-old goddaughter sends me something. I just don't get the appeal even though millions of celebrities and even mainline companies use it for marketing. My students were aghast when I told them that I wouldn't invest in any stock that depended on the vagaries of their ever-changing taste. 

Enter Kylie Kardashian. She's the youngest Kardashian (20 years old), is worth at least $50 million, runs a cosmetics empire on track to earn a billion dollars, has 95 million followers on Instagram, and has 24 million followers on Twitter.

After she offhandedly tweeted that she doesn't really open Snapchat anymore yesterday, Snap lost $1.3 billion (6%) in value. This plunge added to an already bad week for Snap after Citi issued a sell rating and the company confirmed to 1.2 million change.org petition signers that its new redesign was here to stay. But it was Kylie's tweet that caused the real damage. Perhaps one of Kylie's lawyers or business managers alerted her to the fallout because she later tweeted out, "still love you tho snap... my first love." Kylie probably forgot how much power she really has. When she released a video about her pregnancy and childbirth, 24 million people watched in less than 24 hours because she had refused to allow any of her followers to see pictures of her belly. She knows marketing. 

Meanwhile, after seeing Kylie's first tweet, cosmetics competitor Maybelline went on Twitter to ask its users if it should stay on Snapchat, noting that its Snapchat views had dropped dramatically. The company later deleted the tweet, but users had already voted 81% to 19% to leave on the Twitter poll.

Snap appears determined to stick to its unpopular redesign, and its CEO received a $637 million bonus last year after the IPO. Perhaps the CEO should use some of that money to pay for a new Kylie tweet. In 2016, when Kylie earned only $18 million, 20% of that haul came from social media endorsements. It looks like the President isn't the only one who can move markets with a tweet. 

H & M Misses The Mark With An Ad Campaign, But Do Wall Street and Consumers Care?

Swedish clothing giant H & M caused a huge stir this week with an ad campaign depicting a young black boy in a sweatshirt that proclaimed him the "Coolest Monkey In the Jungle."  The company's misstep is surprising given the public condemnations of the use of the word "monkey" in Europe over the past few years when soccer fans have used it as a slur against black players. Notwithstanding H & M's many apologies, several megastars have denounced the company and some have even pulled their fashion collaborations. As usual, several have called for boycotts of the retailer. But will all of this really matter? The sweatshirt was still for sale in the UK days for days after the controversy erupted, and the Weeknd, one of the megastars who vowed to never work with H & M, still has his 18-piece H & M collection available online and available for purchase on the store's  U.S. portal.

I'm headed out of the country tomorrow and in my quest for a new sweater, I glanced in the H & M store in my local mall earlier today. The store was packed and likely with fans of the artists who called for a boycott. No one was walking with picket signs outside. But as I have written about here, here, here, here and at other times on this blog, I'm not sure that young American consumers--H & M's fast fashion demographic--have the staying power to sustain a boycott. Perhaps the star power behind this boycott will make a difference (but I doubt it).Wall Street hasn't punished the store either. The stock did not take a major hit. Moreover, CNBC has reported that in December, the company reported its biggest quarterly drop in ten years. This means that H & M's pre-existing financial woes will make it even more difficult to determine whether a boycott actually affected the bottom line. 

Time will tell regarding the success of this latest boycott effort but in the age of hashtag activism, I don't have much confidence in this latest boycott effort.

 

 

Fitbit and Publicness

As some of our BLPB readers know, I am a habitual 12,000-step-a-day walker.  I monitor my progress on steps, stairs, and sometimes sleep using a Fitbit "One" that I have had since Christmas Day 2012.  Fitbit recently announced that it is discontinuing the One.  So, if my existing One dies off, I will have to switch trackers.  And, sadly, I am likely to have to switch suppliers.  While Fitbit has been good to me, the rest of its trackers are not at all interesting or suitable for my desired uses.  They are almost all wrist models, and the one clip-on tracker Fitbit sells is relatively bulky and antiquated.

I am not the only one who is unhappy about the discontinuation of the One tracker.  Fitbit has discussion boards for members of its "community."  The discussion board titled "Is Fitbit One being discontinued?" (which was started over the summer) has lit up over the past week.  As of the time of this post, there were 519 posts in the Fitbit forum.  

I have been impressed by the passion of the folks who have posted comments and responses.  Many posted reviews of other Fitbit products and competitor products that might be adequate substitutes for the One for some users.  But I have been fascinated by the nature of several posts, including a number that focus on corporate governance and finance matters.  Community members were motivated to check into and comment on Fitbit's published financial statements, litigation profile, and trends in the mix of product sales.  Some encouraged calling either Fitbit's customer service line or mutual funds that hold Fitbit shares (and they named the funds) to express concerns.  One member of the community posted that he is worried about Fitbit's employees, customers, and shareholders in the event Fitbit's business goes South.  

The comments made on the Fitbit community discussion board reminded me of Hillary Sale's work on publicness, including her article entitled Public Governance.  In that article, she observes:

Publicness is both a process and an outcome. When corporate actors lose sight of the fact that the companies they run and decisions they make impact society more generally, and not just shareholders, they are subjected to publicness. Outside actors like the media, bloggers, and Congress demand reform and become involved in the debate. Decisions about governance move from Wall Street to Main Street.

Hillary A. Sale, Public Governance, 81 Geo. Wash. L. Rev. 1012, 1013 (2013).  She later echoes that thought in a slightly different way:

 

Key to an understanding of publicness . . . is that the group demanding governance is larger than the stated partners (i.e., shareholders, directors, and officers) and includes outside actors. Employing a crabbed definition of this group is actually part of the problem. Those “outsiders” scrutinize decisionmaking and incentives. They monitor failures of internal governance, press for more external governance, and then publicness grows.

 

Id. at 1034.  The users of Fitbit's discussion board are digesting and reporting on Fitbit's operations and seeking governance changes in a public forum.  They are seeking ways to be heard by management.  Moderators occasionally post commentary and promise to pass on comments to Fitbit's management.  This is publicness--feedback loops that enhance public scrutiny and sway over the firm.

 

I doubt any of this will save the Fitbit One.  It seems that the firm is moving on with new products, notwithstanding significant customer demand.  So, once my rechargeable battery dies, I will be in the market for a new tracker.   I am accepting recommendations . . . .

Focus Group Experience

Recently, I participated in a focus group on running shoes for Brooks. A few years ago, I did something similar for New Balance. 

Brooks paid each participant $100 for 90 minutes. 

The group was well-facilitated, and the group members stayed incredibly engaged. The 90-minutes flew by.

The research Brooks was conducting on both shoe design and marketing was extremely qualitative. It was essentially a brainstorming session. I do think Brooks could have gotten more out of the time if they would have had everyone privately write down their own ideas first, as there were about three or four of the ten of us who dominated the discussion. 

While this type of focus group was not cheap---$1000 in payment plus renting the room plus travel for two employees from Seattle---it was surely a very small fraction of their production and marketing budget. And I do think Brooks got some valuable ideas. Brooks does this sort of thing all over the country, and their employees said that they do start to hear patterns in the responses. It is those patterns that Brooks acts on, as they can't possibly address every one-off comment. 

This focus group made me think that universities should consider similar focus groups with applicants and with local companies. I know a bit of this happens informally at most places, and perhaps it happens formally at some places, but I do wonder if it is done with the same regularity and intensity as for-profit firms like Brooks. I think the insights would be valuable, and even if the insights are poor, the organizing institution does get to explain itself (and show it really cares) to the focus group participants. 

Building Brand Value through Building Community

Next week, I will write about my focus group experience with Brooks Running.

Last week, on Global Running Day, Brooks announced “the biggest athlete endorsement deal in sports history” saying that they want to endorse everyone who runs….with $1 and a chance to win Brooks running gear.

This would have made a decent April Fools Day joke, but as a serious attempt at building brand value, it is pretty weak.

Brooks would have done much better to follow the lead of Oiselle, a women's athletic apparel company that I have spoken and written about before in regard to their multi-level team of professional, semi-pro, and recreational athletes. The main differences between Brooks and Oiselle is that Oiselle provides value to the team members and creates shared experiences. Oiselle athletes get team gear (even though the recreational runners pay for the gear), and they get invited to numerous group events. Oiselle has state team leaders and helps connect the team members for training and races. The “birds”, as they call themselves, really seem to support each other.

Now, the Oiselle method is definitely more complicated, and it probably comes with various legal risks. For example, what if one the team leaders turns violent or what if a team member gets hit by a car on a run led by a team leader or what if someone gets a bit out of control at one of their camps or parties? (I am sure Oiselle has everyone sign waivers, but as we know, waivers don't always prevent costly litigation and liability). There is also a fair bit temporal and financial costs involved in creating the team singlet, sending out newsletters, updating social media, planning events, etc. But building real community and brand value is almost never easy. (And Oiselle is far from perfect and has its critics, but I applaud Oiselle's effort. That said, if they are still requiring the recreational athletes to both pay and only post photos of themselves on social media in Oiselle gear, that seems overly restrictive. If they are going for authentic, they should provide suggestions instead of mandates. With sponsored athletes, I better understand the restrictions, though even with sponsored athletes you can usually tell a difference between organic and forced marketing posts.)

Sadly, Brooks' “endorsement” isn’t about building community, rather it is a pretty transparent attempt to buy your e-mail address and lure potential customers for $1. (Also, I uncovered in the fine print that they limited the $1 payment to the first 20,000; they have over twice that many signed up already).

As I will write next week, I was impressed with the people running the Brooks focus group, but they didn’t ask us about this “endorsement” idea, and if they asked others about it, I think they got bad advice. Brooks might get a bit of press, and they will probably even get a fair number of email addresses from curious people, but I doubt they will get much of lasting value. 

[I wonder how many people who signed up read the fine print. For example, there is a Code of Conduct that will be sent to participants. Also, see the clause below the break seemed incredibly broad.]

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