CSR Case Overview CSR Dougall,

CSR Case Overview

CSR

Dougall, Elizabeth. "Issues Management." Research Topics. Institute for Public

Relations. 2008. http://www.instituteforpr.org/topics/issues-management/

Lazo, Alejandro. "Mass. Sues Big Lenders Over Foreclosure Practices." Los Angeles

Times, 1 Dec. 2011.

Sullivan, John. "How Our Laws Are Made." How Our Laws Are Made. Office of the Parliamentarian of the U.S. House of Representatives in consultation with the Office of the Parliamentarian of the U.S. Senate, The Library Of Congress THOMAS. 2003. < http://thomas.loc.gov/home/lawsmade.toc.html>

GMAC has ceased servicing mortgages in Massachusetts in response to a lawsuit brought by Massachusetts Attorney General Martha Coakley (Lajo 2011). BofA and other banks are in the process of negotiating a settlement with a coalition of all 50 U.S. state Attorneys General (AGs, below), who threaten to sue us over foreclosure procedures they allege broke laws. The banks have dragged negotiations out one year longer than they were scheduled to conclude, over one issue, further prosecution for as yet unidentified potential violations. The banks will settle if the AGs surrender a provision holding them liable for violations that have not yet been charged. If the AGs settle, the states will be able to forego expensive and time-consuming lawsuits.

The GMAC case is interesting because of the between-group interests, between the different banks, banks vs. existing regulators, the effects on price and access to credit across one of if not the largest credit market in the U.S., which translates to bank-borrower interest dynamics (price), and between the banks and the 50 Attorneys General (AGs). What is more interesting and unprecedented in this case is the within-groups dynamics, which will likely provide discussion for game theorists for years to come, because it pits erstwhile competitors and one of our subcontractors (MERS), against this coalition of 50 states. Within the bank group however, materially significant 'free rider' externalities derive from GMAC ceasing to service new mortgage claims in Mass. This is important because if the banks can convince the public, stakeholders, regulators and the AG Coalition that lawsuits on a state-by-state basis will drag on for years at significant taxpayer expense, then the Coalition of AGs may come back to the table and surrender the 'liability' issue. If one bank takes an oppositional stance, the rest get to play 'good cop' and appease the AGs back to the table, where the banks may potentially win, at the same time dividing up the mortgages that competitor declines. While activist lawyers tout this as providing a 'road map' to suing the banks, this road map may end up in a cul-de-sac of attrition-based negotiations where the litigant with the most resources wins.

This is also interesting because of the within-group dynamic playing out between the AG Coalition members. Several states have been investigating banks with the implication that they may sue outside the Coalition. If the Coalition falls apart and all the states sue the banks individually, the result will be to buy us years before the courts can begin to litigate the allegations, which will then probably take years to even bring to trial given the complexity of the "Robo-signing" issue, and then years of appeals before ultimate adjudication. The result is that if the Coalition falls apart, the banks may each face a worse final outcome, but that will be years in the future, so current management and stakeholders have a strong incentive for the banks to decline any settlement in this view. Hence the dynamic within the group of formerly competing banks: a Coalition collapse will buy all the banks time to drag out the lawsuit and demonstrate profit for at least several years, even if the long-term results are worse than if we settled with the AGs today. If all the banks follow suit and withdrew product offerings in states that sued like GMAC did in Massachusetts, the result will be a tightening of credit and increased cost to remaining potential home loan consumers, which pits the consumer at large against the regulators if a smaller applicant base means they all bear a greater portion of the total cost. This creates a stake for voters in the outcome of upcoming elections, including but not limited to Attorneys General, in all 50 states. But the other hand if the banks collude to affect prices or encourage monopoly, we face the risk of anti-trust violation. As always, this type of regulation is simple to get around with nonverbal signaling behavior that cannot be traced in litigation. The result is a game theory simulation in real time the likes and scale of which the U.S. market has perhaps never seen before.

1-6. Define "strategy" and differentiate market and nonmarket strategies and describe the need to integrate them.

Strategy is a series of sequential and/or simultaneous actions taken to achieve a particular objective. Since it is impossible to predict all potential contingencies, strategy needs to be flexible and adaptive but must provide guidance toward the objective when executive consultation is not feasible. Contingencies that occur within the value chain fall under commercial or market strategies, and include choice of input mix; supplier; location; advertising etc. Contingencies within which commercial activities take place, but which are not accounted for on the balance sheet directly, include rulemaking; technological innovation outside the product or service sector; weather, political events or the like. These nonmarket contingencies require flexible guidance that will keep all silos in the value chain acting toward the objective regardless what happens until specific orders can direct reaction to such change outside the firm. Therefore in order to maximize return on available resources, the firm needs to identify how market and nonmarket actions interlock and enhance or restrict each other, and act simultaneously to achieve the greatest output for the investment of time and materials. BofA's market strategy in this case is to capture sales in Massachusetts and raise costs for everyone else and blame it on the AG Coalition. BofA's nonmarket strategy is to turn voters and legislators against the AGs.

2-1. Describe stakeholder management and the need to balance stockholder and other stakeholder interest.

BofA's stakeholders in this case contain multiple redundancies, and economies of scope can be achieved by educating the individuals who own stock; work for the firm; do business with the firm; and also the consumer at large, how the banks were willing to settle with the AG Coalition, but the Coalition would not let go of the particular indemnity item. This will have the effect of disrupting the AGs offices through the 2012 election cycle, and also create leverage with legislators facing reelection, or their challengers. While these legislators do not oversee the elected AGs directly, they do or will sit on the committees that will be overseeing regulatory implementation of any court decision that results from these lawsuits in their states and nationally.

2-2. Differentiate public affairs management from issues management.

This event points out how public affairs can affect issues management: Issue management responds to particular events the public finds controversial, whereas public affairs relates to managing overall corporate goodwill and perception (Dougall 2008). The two interact because high goodwill can buffer and reduce negative issue perception and low public goodwill can become aggravated by a negative issue.

2-3. Identify the three phase process of issues management

The three phases are pre-incident, incident and post-incident stages. Whereas possible contingencies are infinite, some possible incidents are more likely than others. The banks have a standing legal policy of challenging any violation of paperwork because we have found in the past that most parties avoid lengthy and expensive lawsuits which they do not have the resources to pursue, and which we have vast resources to defend against. This is an example of a general pre-incident management strategy. The actual incident, the AG Coalition lawsuit, is in process now and issue management calls for carrying through the pre-incident strategy of stonewalling as long as possible, and then fighting the AGs on nonmarket fronts in order to disrupt the continuity of their suits and make them willing to settle for even less than they would have gotten as a class had they dropped the indemnity issue. Post-incident stage is so far out that we will be able to frame the issue and distract stakeholders between now and then as other events capture their time and attention. The grand strategy is called 'attrition.'

2-4. Discuss the four stages of crisis management, including the 3 A's of crisis communication (for cases state if the company is in a crisis using the book definition).

The pre-incident stage has been called the "Prodromal" stage, which here began when we (BofA) deliberately initiated the Robo-signing practice in order to cut costs and offer mortgages at rates that would keep us competitive with the other Big Five lenders. In the prodromal stage, we set aside legal resources for just this type of challenge, and our analysis was correct. The crisis now is in the "acute" stage, and has been since the AGs brought suit, but since we have been able to stonewall this long and have been able to even better organize resources, the crisis is largely entering the "chronic" stage, if the original Robo-signing was prodromal and the housing market collapse could be considered the acute crisis. In that view, this litigation is just clean-up or "post-mortem." The final "resolution" stage will be indicated by settlement of all the suits, which we anticipate will take at least a decade.

3-4. Compare and contrast mediators, arbitrators and ombuds.

This case demonstrates the difference between mediators, here represented by the neutral parties facilitating communication between the banks and the AG team negotiating for the Consortium, versus arbitrators who would hand down a binding decision (effectively the courts, here), and ombudsmen who represent the consumer, perhaps here in the person of the Attorneys General.

3-5. Define the corporate stakeholders and describe their primary power.

Corporate stakeholders in this case are the firms whose accounts we process and other banks who borrow from us overnight. If these firms and banks will see their costs go up from these potential legal actions, they have a direct stake in undermining the AG's ability to adjudicate penalties. This shows their power advocating against the current AGs in nonmarket roles outside the corporate sector, because higher costs for us will mean higher transaction costs for them.

4-3. Characterize the three levels of corporate social responsibility.

The first level of corporate social responsibility is the 'basic' level of compliance with law; safe working and product conditions, and ethical performance. BofA claims full compliance at all these levels. The second level is 'organizational,' or the responsibility to promote fair and consistent treatment within the firm, which BofA complies with through promotion, explicit nondiscrimination policy, seniority and performance benefits. The third level is 'societal,' which comes through participation as a 'good neighbor,' which BofA accomplishes through extensive charitable donation and in this case, delaying foreclosures we could prosecute in a more aggressive manner, but allow to remain on balance sheets at considerable risk to the firm, in spite of considerable misrepresentation.

4-4. Characterize the three levels of moral development.

The Kohlberg six-stage model can be classed in three stages of Pre-Conventional, punishment-avoidance motivated obedience driven by self-interest, the Conventional stage where the person acts to maximize interpersonal harmony through conforming with social norms as set by agreed-on authorities, and the Post-Conventional level where choice of actions derive from 'Golden Rule' type ethical principles based on consistency and universality from self to all others. In this case BofA is operating on Pre-Conventional and Conventional stages.