In The Headlines
Businesses in the Crossfire: The Growing Threat of Cyber Warfare
While the Cold War never turned hot between the major world powers, throughout Asia there were a number of border disputes and other regional small wars. For instance, India and Pakistan engaged in several border disputes, and China engaged both India and the Soviet Union in similar small wars. Cooler heads prevailed and major conflicts were avoided. But these small conflicts continue in the 21st century, only instead of shells flying across a border, the battlefront has moved online.
Last year, a full-blown hacking war erupted between India and Pakistan, with groups on each side defacing websites belonging to organizations in their rival nation. It was a brief cyber war, with the websites of the Press Club of India (PCI) and the Pakistan People’s Party (PPP) getting hacked. “We’re seeing this as a common form of attack,” says Martin Libicki, senior management scientist with the RAND Corp. “This is a relatively easy attack to carry off, and the cost in terms of damage isn’t very large.” But as it continues to develop, cyber warfare has the potential to cause a lot more harm than mischief and nuisance.
Cyber warfare has become an extension of traditional small war politics. In most cases cyber warfare is not meant to cause physical or even economic damage, but is focused more on creating mass annoyance or mass distraction. Outside of the economic harm it caused, the alleged North Korean cyber attack on Sony is an example of how cyber warfare fits into the mass annoyance category. But there are cases where these attacks have had more damaging results. In March 2013, a bank and three South Korean TV stations were victims of an attack, also believed to have been carried out by North Korea. The attacks actually froze computer terminals and shut down ATMs and mobile payment services. In total, more than 50,000 servers across South Korea were taken offline in the attack, costing as much as $800 million. Similar attacks also occurred there in 2009 and 2011. In December 2014, North Korea was also accused of a cyber attack on South Korea’s Korea Hydro and Nuclear Power Co. Ltd. That attack did not cause physical damage, but it may have been conducted to gain plant blueprints and test data. “These are two cases—the attack in 2013 and the one in 2014—where it was more than embarrassment,” Libicki says. “But the latter is also an extension of cyber warfare as espionage, which is largely used by everyone today.”
As noted in the documents leaked by Edward Snowden, countries spy on one another all the time—and this includes allies spying on each other. But most security breaches are likely kept quiet to avoid the embarrassment that comes along with it. Still, these “friendly” security breaches can put people in harm’s way. For instance, government operatives, also known as spies or sources, can be compromised through these kinds of breaches. “There is very likely the possibility that someone could be put in danger if they are compromised,” says Bryce Boland, CTO of cyber security firm FireEye. “Intelligence gathering through a cyber attack could unmask operatives, leading to people being physically at risk.”
But it is not just state-sponsored spies who may be at risk by cyber warfare. According to a FireEye report released early this year, the volume of attacks involving the theft of corporate data has increased dramatically. In addition, China has been suspected of cyber attacks that have targeted not only government agencies, but also corporate entities, and even journalists. The attacks reportedly began as early as 2005 and may have targeted businesses all over Southeast Asia, including India, Indonesia, Malaysia, Nepal, the Philippines, Singapore, Thailand and Vietnam. Chinese companies, which are closely tied to the government in Beijing, may have sought out intellectual property and other sensitive data from their regional competitors. “It has become part of the doctrine by certain countries as how they project power,” says Boland.
There has been backlash from these attacks, but it has not been much different than how trade negotiations have been handled for many years. Basically some Chinese companies including Huawei, Lenovo, and ZTE Corp, have been blacklisted by Western governments. The “Five Eyes,” which encompasses the intelligence agencies of Australia, Canada, Great Britain, New Zealand, and the United States, instituted policies in recent years that ban computers or other devices from these companies being used on secure networks. Likewise, regionally, India and other nations have instituted similar bans on the use of Chinese devices. “We are seeing that notable Chinese companies aren’t trusted by Western or even regional governments,” explains Boland.
From website hacking to trade embargoes, this demonstrates the very real concern that actions in cyberspace can escalate quickly and have real world consequences, possibly spilling into the safety and welfare of civilians. Libicki suggests that thus far, “…we haven’t really seen where something can get that out of control, but it could happen.” With the possibility that a cyber attack could lead to real world damage, there is the question of what will be the “proportional response” that the President has promised? Boland thinks it is just a matter of time before we see the waters being tested, but he cautions that such an attack is more likely to come from a group acting not for a nation state, but potentially be an insurgent group with its own identity. In other words, if cyber warfare is being used behind the scenes in border wars, what would happen if a force without borders started in? “Cyber terrorism is the greater fear for loss of life at this point,” he notes. “Where a group affiliated with ISIS could conduct a cyber attack that results in the loss of life.”
Citations
1. http://for.tn/1MSi2Mt – Fortune
2. http://bit.ly/1rtk1uh – RAND Corp.
Ralph Lauren’s New CEO Focuses on Retail Rather Than Fashion
For the first time in its 48-year history, Ralph Lauren’s fashion empire has new leadership. Stefan Larsson inherits a label with a rich heritage and global name recognition. But it is also one that has grown a bit stodgy and stale. Ralph Lauren’s had a rough year. Shares dropped 44% this year before Lauren announced Tuesday that he was stepping down as Chief Executive Officer from the company he founded. Comparable sales fell 2% last quarter, worse than analysts had anticipated, while sales through wholesale channels slumped 6%. The anemic results left investors unnerved and yearning for change.
Investors see Ralph Lauren as a brand in need of “a serious face-lift,” said Chen Grazutis, a Bloomberg Intelligence analyst. Larsson has precisely the kind of “extended experience in retail” that suggests he could help reinvigorate the company, Grazutis added. Ralph Lauren faces a brutal competitive environment, with the rise of fast-fashion powerhouses such as Zara, H&M, and Forever 21, as well as a shift toward online sales, attacking the brand from all sides.
Retail, not fashion design, is Larsson’s world. While Lauren’s been setting trends, Larsson has followed them. He is credited with the revival of Gap’s Old Navy brand. After becoming its president in 2012, Larsson streamlined operations and kept Old Navy trendy. Prior to that, he spent 15 years at H&M, a retailer bent on relentless fad-chasing in a perpetual quest for relevance. Though no one expects Ralph Lauren to suddenly morph into a fast-fashion business, it is that same sort of relevance that is needed for an aging label.
For Ralph Lauren, it has always been about bringing classic Americana to the masses, whether designs that evoke the romanticized American West, denim workwear that denotes American industry, or preppy polos that strike a vibe with the American Northeast. It is a label that transports feelings of the past to the present day. By nature, since it is constantly diving into nostalgia, there is always the threat of the brand becoming tired and worn out. “With Old Navy, Larsson tried to get to the essence of what the brand meant to consumers and move from there,” said Liz Dunn, CEO of consulting firm Talmage Advisors, going on to say, “Which is probably the right approach at Ralph Lauren, too.”
Beyond the brand, Larsson faces several other challenges. He joins at a time when the company is undergoing reorganization with six global presidents running slices of the company. The effort—scheduled to be completed in 2017—will save $100 million annually and boost profit margins, according to the company. Ralph Lauren will also trim the company’s product count to keep inventory low and reduce its reliance on discounts. Plus, the company’s CEO and Lauren’s No. 2 person, Jackwyn Nemerov, will retire in November.
In the meantime, the company is working to offset the impact of a strong U.S. dollar depressing tourism at its North American stores and boosting traffic in Europe and Japan, where business increased by “double digits,” Nemerov said on a recent earnings call. In the U.S., Ralph Lauren depends largely on foreign tourists. About half the company’s stores and many of its outlet locations are in cities that are major travel destinations, she said. Last quarter, Ralph Lauren chose not to slash prices as steeply as competitors. That decision had consequences for sales. “While we knew this decision could slow our revenue growth, we believed it was the right thing to do for our brand,” Nemerov said. “We have seen a pickup in sales at the beginning of the second quarter. However, we remain cautious, as most of the quarter remains ahead of us.”
With a new CEO who has specialized in mass market essentials, not grandiose fashion shows, perhaps the world’s already caught a glimpse of Ralph Lauren’s future. As fashion critic Cathy Horyn at New York magazine noted, Lauren’s fashion show on September 17th lacked some of his usual flair—no chandeliers about the runway, no opulent flower arrangements. Even the clothes themselves were mellower. “Come to think of it, the evening clothes in the show were unusually subdued,” she wrote. “Where were the gowns?”
Citations
1. http://bloom.bg/1WEklY2 – Bloomberg
2. http://onforb.es/1M2pCRR – Forbes
The Good News Is . . .
• Consumer confidence rose to 103.0 in September—7 points over the consensus and 3 points over the top estimate. The gain is centered in the present situation component of the consumer confidence index which hints at ongoing strength in the labor market and consumer spending. This component jumped more than 5 points to 121.1, which is the best reading of the recovery since September 2007.
• Bassett Furniture Industries, Inc., a leading manufacturer, importer, and retailer of mid-priced home furnishings, reported earnings of $0.39 per share, an increase of 89.0% over year earlier earnings of $0.21 per share. The firm’s earnings topped the consensus estimate of analysts by $0.14. The company reported revenues of $111.0 billion, a 30.3% increase. Management attributed the company’s results to the continued strength of its Nike brand, improved gross margins, and a greater contribution to earnings from its international operations.
• Media measurement companies, comScore and Rentrak announced plans to merge, seeking to challenge the longtime industry leader Nielsen in tracking how people consume media in an era of rapid change. ComScore measures people’s use of online media, and it has recently made a push to analyze television viewing. Rentrak uses data from set-top boxes to measure what people are watching on television. Combined, the two companies are seeking to create an industry force that will provide a stronger competitor to Nielsen by measuring how people consume media across a proliferation of screens— mobile, desktop, television, and more. The deal calls for Rentrak, founded under a different name in 1977, to become a wholly owned subsidiary of comScore. The transaction values Rentrak at about $827 million on a fully diluted equity basis. Under the deal’s terms, each share of Rentrak will be converted into the right to receive 1.15 shares of comScore. Rentrak stockholders will receive $47.69 per share.
Citations
1. http://bloom.bg/1Dl6vPO – Bloomberg Economic Calendar
2. http://bit.ly/1Rnui9h – EarningsWhispers.com
3. http://bit.ly/1Vx6WyE – Bassett Furniture Industries, Inc.
4. http://nyti.ms/1jGhS17 – NY Time Dealbook
Planning Tips
Guidelines for Being an Estate Executor
It is both an honor and a burden to serve as someone’s executor. An executor is entrusted with the responsibility for winding up someone’s worldly affairs, a big or little task, depending on the situation. Essentially, an executor is charged with protecting a deceased person’s property until all debts and taxes have been paid, and seeing that what is left is transferred to the people who are entitled to it. The law does not require an executor (also called a personal representative) to be a legal or financial expert, but it does require the highest degree of honesty, impartiality, and diligence. This is called a “fiduciary duty”—the duty to act with scrupulous good faith and honesty on behalf of someone else. Below is a brief guide to some of the duties of an executor. If you are asked to be the executor of someone’s estate, be sure to check with your legal or financial advisor to better understand the responsibilities this entails before you agree.
Find and manage assets of the deceased until they are distributed to heirs – This may involve deciding whether to sell real estate or securities owned by the deceased person. Most jointly owned assets pass to the surviving owner, without probate. And if the deceased person’s property is worth less than a certain amount (how much depends on state law), it may be able to go through a streamlined probate process.
Figure out who inherits property – If the deceased person left a Will, the executor will read it to determine who gets what. If there is no Will, the person in charge (sometimes called the administrator) will have to look at state law (called “intestate succession” statutes) to find out who the deceased person’s heirs are. The executor will need to file the Will (if any) in the local probate court. Generally, this step is required by law, even if no probate proceeding will be necessary.
Handle day-to-day details – This may include terminating leases, credit cards, and notifying banks and government agencies—such as the Social Security Administration, the post office, Medicare, and the Department of Veterans Affairs—of the death.
Set up and manage an estate bank account to handle bills and taxes – This account will hold money that is owed to the deceased person, for example, paychecks or stock dividends. The executor uses estate funds to pay continuing expenses. This includes items like utility bills, mortgage payments, and homeowner’s insurance premiums. If there is a probate proceeding, the executor must officially notify creditors of it, following the procedure set out by state law. A final income tax return must be filed, covering the period from the beginning of the tax year until the date of death. State and Federal estate tax returns are required only for large estates.
Supervise the distribution of the deceased person’s property – The property will go to the people or organizations named in the Will, or those entitled to inherit under state law.
Citations
1. http://bit.ly/1jGhSxW – Bankrate.com
2. http://bit.ly/1GqaYSg – LegalZoom.com
3. http://bit.ly/1JuOVLv – Nolo.com
4. http://bit.ly/1JMjD1K – AARP
5. http://bit.ly/1hi2UfW – FindLaw.com
