By Daniel Greenberg, Partner of Forward Risk and Intelligence
Investigative instinct is the key to staying one step ahead of “reputation management” consultants that manipulate web results and sanitize the track records of companies and business leaders.
Online due diligence investigations – vetting potential business partners, investments, or key hires on behalf of investors, law firms, financial institutions, or corporate clients – need to be conducted in line with the latest best practices, in order to ensure that all pertinent risk issues are identified and highlighted. Scammers and fraudsters, however, have become savvier at manipulating search engine results and other sources of online information, hiding accurate but unflattering content under the aegis of “reputation management.”
Investigators have a responsibility to counter these techniques and provide accurate, non-sanitized facts to their clients. This entails spotting the often-subtle signs that something is “off,” and working carefully to separate truth from fiction.
Reputation management is similar to digital marketing, but with a key difference. Whereas digital marketing involves efforts to promote a brand online, reputation management is an attempt to influence or even control what others will see about a company or an individual.
There are certainly valid reasons why reputation management may be carried out. For example, if a defamatory claim or sensitive personal information is posted online, it is only natural to want the offending content removed. As another example, some companies respond to negative employee posts or customer reviews to give their perspective.
On the other hand, reputation management can also be used to prevent the public from viewing accurate but negative news stories, blog posts, and reviews. For example, a fraudster can seek to bury an article in the local press about criminal charges filed against them. A June 2019 Buzzfeed News feature highlighted “Google-savvy reputation consultants” who can “cover up arrests, poor customer reviews, and other image-killing content.” The article discussed various techniques used to manipulate search results and ultimately “enable people to hide important details about their lives from potential employers, customers, and romantic partners.” While not necessarily illegal, these methods are fundamentally deceptive.
This unsavory form of reputation management is primarily intended to mislead both search engine algorithms and the general public, but even investigative professionals can be fooled. In the context of investigative due diligence, such a mistake would ultimately deprive a client of an accurate understanding of whom they are getting into business with.
Any investigator should already know how to approach online claims with a critical eye, but they may not always recognize some of the tell-tale signs of a whitewashed online profile. Drawing from our own research, we have compiled some tips that can help investigators to identify and sidestep common reputation management tactics:
The easiest way to determine that the online reputation of a company or individual has been “managed” is to spot artificial, positive content.
A reputation consultant may create fake webpages, press releases, customer reviews, or blog posts meant to both bolster their client’s reputation and hide unflattering stories. The fake web content is carefully designed using search engine optimization (SEO) techniques that trick an algorithm into featuring the content at the top of search results, pushing down other, legitimate, sources of information. One controversial SEO technique is to pay for other websites to link to the fake web content, making it appear to be a legitimate and popular destination for web traffic.
Spotting this artificial positive content requires an investigator to be at least as media-savvy as the reputation manager. There are so many news sites on the internet that it can be hard to tell at first that any particular source is fake. Also, in the era of “sponsored content” masquerading as news stories, it is common for a promotional article to visually appear like a legitimate news story. On a similar note, the Wall Street Journal recently discussed how political organizations have created networks of websites that purport to be genuine local news sources, while actually pushing highly partisan agendas.
For a potentially fake news site, an investigator should look at the homepage and a few other news articles to determine whether there is a legitimate news service being offered. Do the articles focus on news related to a specific industry or location, or are the topics seemingly random? Is there any odd or unnatural writing, which could be a sign of bot-generated content? The article’s byline should have the name of the writer, and an investigator can assess whether this is a real person with a discernible track record in journalism.
For a potentially fake press release, an investigator should consider whether the announcement is truly a newsworthy event. For example, a reputation management firm may attempt to hype up a charitable donation or scholarship that is either for a small amount or entirely fake. Investigators should be aware that some well-known news websites will publish paid press releases without vouching for their accuracy.
Fake customer reviews and blog posts can be harder to distinguish. Still, if the tone is overly promotional, the investigator should take a skeptical approach. One tell-tale sign of a fake post is finding the same exact text repeated on multiple, ostensibly unrelated, websites. A sudden spike in the frequency of posts is another indicator of fake content. An investigator can also use web domain registration data (registrant name, IP address, etc.) to uncover connections between purportedly separate websites and blogs that are actually managed by the same actor.
In order to get past a mountain of fake web content, a media-savvy investigator can include the use of targeted search terms to more quickly find relevant content. In addition, Boolean operators can be used to filter out artificial content or “noise.”
If a company or individual has numerous followers on Twitter or Instagram, that can appear to lend them an air of credibility. However, many people – including fraudsters seeking credulous investors – purchase fake followers on social media platforms. The two easiest ways for an investigator to spot fake social media followers are to examine the followers, and to examine the quality of the followers’ engagement.
Legitimate follower activity (e.g., likes and shares) should be somewhat proportional to the number of followers. If an account has 800,000 followers but recent posts are only receiving a handful of likes, that is an obvious sign of fake followers. Comments can also be reviewed for signs of genuine engagement. An investigator can also scan the accounts of a sample of followers and determine whether they appear to share interests with the social media account. If, for example, followers of a biotechnology company seem to have expressed no other interest in the biotech or pharma sectors, that is an indication of fake accounts.
Likewise, an investigator should be able to recognize low-quality social media posts and accounts. A social media account for a relatively unknown person or company, with only a couple dozen posts, is very unlikely to attract thousands of legitimate followers. Also, if a recently created account has made thousands of posts already, that is probably the work of a bot, not a real person.
The most challenging aspect of investigating a person or company with an actively managed online reputation is finding web content that has been removed, or “scrubbed,” from the internet.
Web content can sometimes be removed from a search engine’s results through a process called “de-indexing.” A reputation management consultant can ask a search engine provider to remove a link from its results, although usually they require a legitimate reason – like copyright violations or sensitive content – before removing the link. A website owner could also be pressured into de-indexing a page through coding changes. While investigators often have a favorite search engine, they should also run searches on competing platforms and compare results.
Perhaps the hardest content to identify is a page that has been taken down from the internet. A reputation management consultant may have pressured a publisher, like a local news website, to take down negative content about a person or company. For the investigator, they may find that a potentially significant lead runs up against a broken link. One perennially useful solution is the Internet Archive’s Wayback Machine, which has a huge collection of archived web pages that can be reviewed. Investigators should also search within subscription-based news media databases, which contain older articles that often do not appear in normal search engine results.
The increasing sophistication of online reputation management techniques puts into sharp relief the difference between a surface-level review and a deep-dive investigation. The key finding in an investigation may be based on a subtle indication that something is amiss, rather than an article or legal filing plainly stating allegations of wrongdoing.
Online reputation management could also expose the limits of artificial intelligence (AI) tools that purport to automate the due diligence process. Such tools, which scan large datasets and carry out natural language processing for unstructured web content, are touted as able to highlight risk issues. However, these scans are typically targeted at risks in the form of government sanctions or major news stories that contain certain key words, like “fraud.” While results from automated scans could be useful for investigators to review as one part of a larger process, it is not clear how these tools will be able to adapt to an information landscape that has been intentionally manipulated.
Ultimately, an investigator’s most important ally against online reputation management techniques is their own instinct. Research must never become an exercise in rote “box-checking.”
While investigators often shy away from providing subjective opinions, that does not mean setting aside their own analysis and common sense. Doing so would unwittingly play into the hands of deceptive practices like those outlined above. Instead, no matter the scope of any particular assignment, investigators must always approach all claims with professional skepticism and apply their own knowledge, experience, and intuition to their research.
By Krystal Ramirez, Beatriz Bechelli, and Julia Wilton
Imagine that you are a campaign manager, and your candidate is down 5 points in the polls. You know you have a strong message, but you’re up against a well-known opponent with significant endorsements.
A research report hits your inbox: your opponent is not who they say they are. After patiently combing through court filings, property records, past public statements, and even old yearbooks, research has uncovered new facts that voters will be keen to learn. It changes the game, and a new strategy emerges.
Looking for an opponent’s strengths and weaknesses has been a key aspect of political campaigns for centuries. To this day, opposition research, or “oppo,” remains one of the most vital, yet misunderstood, aspects of any competitive campaign for office.
History offers some examples of the impact oppo can have on a political race. The revelation of past sexual misconduct allegations has abruptly ended promising congressional campaigns of both Democrats and Republicans. Likewise, issues related to candidates’ personal and professional track records have, at times, overshadowed policy platforms as central talking points of past U.S. presidential races.
Data from recent election cycles shows a more diverse, and oftentimes younger, pool of candidates now running for office against incumbents at all levels of government. Many of these individuals are first-time candidates. Especially in the current political climate, understanding the importance and core principles of opposition research is more important than ever for these candidates to effectively run for, and win, political office.
Despite oppo’s fundamental role in shaping campaigns, for some, the thought of engaging professional researchers still evokes a “political operative” stereotype of dubious tricks to dig up dirt on a political opponent. These are four of the most common myths preventing campaigns from employing an effective oppo strategy.
No matter the level of office sought – whether a local position or the presidency of the United States – all candidates should consider research a fundamental starting point when launching their campaigns.
At its core, oppo is aimed at gathering information in order to compare and contrast candidates. It is a vital tool used to inform decision-making about messaging, polling, and other elements of a campaign that will help to shape public opinion and media coverage.
While this process may uncover negative information, when done right, it also provides a broader examination of the opposing candidate and a foundation for building the campaign’s central “thesis.” This “thesis” is the argument that the campaign can use to convince voters why they may, or may not, want to support a certain candidate. Campaigns are about storytelling, and research should be the underpinning of crafting a narrative against an opponent.
In the case of self-oppo, research is aimed at identifying a candidate’s own vulnerabilities, in order to better anticipate and refute attacks during the course of a campaign. Before going after a political opponent, it is imperative to first “know thyself.”
Oppo has unfortunately garnered a stigma for being “sleazy” or “playing dirty.” But true opposition research does not involve hacking, breaking and entering, or any other illegal or unethical activity. Opposition research is conducted by professional investigators using public records, and a legitimate firm will adhere to strict standards of integrity.
Some may think that researchers are dumpster diving or having “back alley” meetings, when in fact there is a treasure trove of information available in open sources, much of which is readily accessible online. From campaign finance filings, to criminal history and property records, there is much an experienced investigator can unearth without resorting to tactics for which opposition research is oftentimes unfavorably characterized as “the dark underbelly of political campaigns.”
Moreover, opposition research is not about discrediting an opponent with slanderous or libelous accusations. It does not involve presenting unconfirmed allegations as fact, nor does it involve other unscrupulous conduct. Instead, oppo is based on documented evidence found in open sources that can be corroborated by journalists and others. Oppo is not useful if it is not accurate and grounded in fact.
Given the financial constraints of their budgets, many campaigns believe that engaging professional researchers is too expensive. They therefore decide to have junior staff, like interns, or even volunteers, conduct oppo. Many folks consider themselves amateur Internet sleuths; however, there’s more to it than Googling around. Consider this – would you ask an intern or campaign volunteer to conduct polling, create an ad, or lead debate prep? Probably not. Similarly, engaging experienced research experts is invaluable.
Professional investigators who conduct research for a living know what to look for, and where to look for it. Effective research has evolved to be more than simply compiling “votes and quotes,” and regularly involves sifting through highly complex business filings or court documents, for instance. Even gathering information, such as filing Freedom of Information Act (FOIA) requests, can be quite nuanced.
Working with a research firm can help to avoid making erroneous claims that lead to embarrassing headlines for the campaign.
Ideally, every campaign would have an in-house research team. However, given the reality of limited funds, many campaigns will need to partner with an outside firm. But, not all firms are created equal. Some shops will provide a “data dump” of findings rather than actionable information. What is ultimately most useful to a campaign, particularly to its communications and digital teams, is a narrative that can be conveyed to voters and the media.
Additionally, what can set a firm apart is its ability to adapt tailored projects for a campaign that go beyond a “cookie cutter” research book. A successful oppo research approach targets specific local concerns that may be especially salient for a campaign’s unique context. The best firms become, in effect, an extension of the campaign.
When shaping their strategy, successful campaigns will choose the right partner to unlock the information advantage that political research like oppo, and self-oppo, can offer.
By Daniel Greenberg, Partner of Forward Risk and Intelligence
U.S.-based law firms and investors participating in international proxy contests may find themselves at a disadvantage if they cannot match their opponent’s local knowledge and jurisdiction-specific research capabilities. Fortunately, a partnership with a dedicated investigations team that has substantial local experience can bridge the gap and increase the odds of a successful outcome. This is especially true in Israel, where there is a wealth of information to find, if one knows where to look.
Israel’s Companies Law is “considered a paradise for activist shareholders,” according to articles by Tel Aviv-based law firm Shibolet & Co.1 The regulatory environment has enabled campaigns by institutional investors as well as American and Israeli hedge funds. Traditionally, one major deterrent to activist campaigns in Israel has been a high proportion of listed companies with controlling shareholders, owning 50 percent or more of the issuer’s voting shares. In recent years, however, opportunities for activism by minority shareholders have increased alongside a trend away from listed companies having controlling shareholders.2
A well-known recent example of activism in the Israeli market was investor Starboard Value LP’s campaign against semiconductor company Mellanox Technologies Ltd. (NASDAQ: MLNX). In early 2018, Starboard leveraged its research into the Mellanox board and highlighted a “staggering” pattern: Mellanox’s board and management had been aggressively selling their shares in the company, with no open-market purchases recorded in the preceding years.3 Starboard used this information to argue that the Mellanox board was not confident in the company’s future and was also not committed to the company’s success. In June 2018, the parties reached a negotiated settlement, with Mellanox agreeing to replace three of its board members.4
The Starboard / Mellanox case displays the especially international nature of corporate contests in Israel. Many Israeli issuers are listed on both the Tel Aviv Stock Exchange and the NASDAQ. Activist campaigns are more likely to target dual-listed Israeli companies than entities focused solely on the local market. Likewise, trends in Israeli shareholder activism may be more dependent on global market conditions than the local economy. Navigating this landscape requires an approach that combines the nuanced insights of an Israel specialist with the broader perspective of an internationally savvy generalist.
Parties vying for an edge in an upcoming proxy battle in Israel will find themselves at a significant disadvantage if they cannot match their opponent’s research capabilities, both within Israel and internationally. The outcome may hinge on whether an activist’s research findings persuasively support an argument that significant change is needed. In any corporate contests involving an Israeli issuer, executive, or director, an investigative researcher should be adept in the following areas:
The Israeli press is fairly accessible to English-language speakers, who can draw from a selection of translated media articles. Don’t be fooled, however, into assuming that all the necessary information will be available in English. Local business news outlets – including TheMarker, Globes, and Calcalist – publish many articles in Hebrew only.
A controversy or scandal may fly ‘under the radar’ of English-language media sources if, at the time, it appears to be a purely domestic Israeli matter. In the context of a high-stakes corporate contest, however, the details reported in Hebrew-language media about such a matter could be used to build a case for or against a proposed change. An investigator who can find these articles and properly interpret them – leveraging their familiarity with the local business and political environment – can therefore add a great deal of value during a corporate contest.
The independence and integrity of a board member or director can be called into question with the revelation of a significant, undisclosed relationship. In a small market like Israel, there are increased chances that two people who are ostensibly unrelated actually have noteworthy ties. One method of uncovering such an affiliation in Israel is a thorough examination of publicly available company records. This research requires, at a minimum, Hebrew-language reading ability combined with experience using the relevant systems.
Hidden relationships can also be exposed via social media connections, and locating and examining these accounts should be a key component of research. A word of caution to those relying on automated translation tools: social media posts and comments can be undecipherable to those who cannot actually read Hebrew. As an example, a popular automatic translator once told users that the comment “חחחחחח” meant “I love you.” The accurate translation is “hahaha” or “lol.”
Some issuers’ financial reports are available in both English and Hebrew; this is especially true for dual-listed issuers. Additionally, this year the Tel Aviv Stock Exchange launched an English-language version of the “MAYA” corporate filings database. This is similar to the U.S. Securities and Exchange Commission’s EDGAR database for public company disclosures. However, while the Israel Securities Authority is encouraging companies to publish reports in English, many will choose not to. Importantly, earlier filings are usually not found on the English-language MAYA portal.
For example, the English-language MAYA search portal reveals two disclosures in recent years for oil and gas company Delek Drilling LP (TASE: DEDR.L). The Hebrew-language portal for the same company shows 125 disclosures in the past year alone.
For those comfortable reading Hebrew, the Tel Aviv Stock Exchange’s MAYA system is freely available, largely comprehensive, and searchable in various ways. The technical language and volume of data can feel overwhelming, but an experienced investigator who is familiar with Israeli company filings can uncover valuable information similar to what U.S.-focused researchers routinely find in SEC filings.
In a contentious proxy battle, revelations about the integrity and track record of a key executive or director could swing the vote of other shareholders. Such discoveries are often found within litigation and bankruptcy records. Availability of such records in Israel is somewhat reduced compared to the United States, and a truly comprehensive search may not be possible. That said, pivotal findings can be found through a deep examination of Israeli litigation and bankruptcy records.
Experienced investigators know to search both official web portals and litigation data made available by respected third-party providers. Proper interpretation of documents can be challenging, because often the only available information about a legal proceeding is a judge’s ruling on a procedural matter. The original complaint or indictment may remain out of view. Another challenge is accurately confirming the identity of the parties; records often do not include national ID numbers. There are also data access restrictions – some records are available to Israeli lawyers only.
Whereas in the U.S. it is common to enlist the services of a court record retrieval service to conduct in-person, on-site research, this approach may be of limited value in Israel. Typically, to get information beyond what is available online, one must have a formal connection to the case (or have the consent of one or both parties).
Notwithstanding all of these limitations, past investigations have shown that extremely valuable information can be gleaned from Israeli litigation and bankruptcy records.
Local contacts in Israel can assist with a proxy contest by conducting interviews with knowledgeable local sources, who may be able to provide additional information about an Israeli company, executive, or board member. These individuals tend to run in small circles, where “everyone knows everyone.” Sometimes executives and directors are hired – even at publicly traded companies – without a formal background check. Human intelligence may be especially helpful in such a context, but there are reasons to be cautious with this approach.
According to Eyal (Allan) Weiss, the CEO of an Israel-based competitive intelligence consultancy named The Firm, local sources are generally willing to speak with an investigator so long as the approach is done properly. It is essential to have a clear, sensible reason for asking questions, and to build trust with each contact.
Any real or perceived attempt to obtain material non-public information (MNPI) is fraught with risk, and interviewers must be explicit that they are not seeking and do not wish to receive MNPI. Likewise, any investigator who misrepresents themselves (a controversial tactic called “pretexting”) could bring both legal and reputational risk upon their client; a modern, ethical investigations firm will scrupulously avoid using this technique. Especially for proxy contest matters, legal counsel should be involved prior to entering the realm of human source inquiries. Those who are risk-averse may prefer to skip this form of research entirely and focus solely on public records.
Law firms and investors can effectively navigate the somewhat daunting Israeli information landscape by enlisting the services of a dedicated investigative team. U.S.-based law firms and investors would be well advised to select an investigative services partner that both knows the Israeli research environment and has direct experience working on corporate contests.
1 https://www.lexology.com/library/detail.aspx?g=ba2f264a-0a8e-4cad-9d20-9f56512d0d5e ; https://www.shibolet.com/wp-content/uploads/2019/06/Shareholder-Activism-Engagement-2.pdf ; https://www.shibolet.com/shareholder-activism-they-sharpened-the-sword-in-2017-where-are-they-headed-in-2018/
By Forward Risk Team
Private equity firms executing founder and management buyouts have always faced a certain element of investing in the dark, relying on a time-constrained number of management meetings and site visits to round out their diligence process. To address many of the inherent information gaps that remain even after the on-site process, background checks through the public record have been a key part of the answer.
However, how do buyers make a deal with someone whom they have never met in person?
With COVID-19 curtailing our ability to travel, it has become even more difficult for private equity buyers to trust that the information provided by management is accurate, complete, and truthful. In the age of Zoom meetings, the challenges facing deal teams in obtaining the full picture on a company’s human capital, operations, and culture have become more pronounced than ever.
Remote meetings challenge a buyer’s instincts as to whether the person on the screen is the ideal business partner for the next five years. Also, remote sessions make it nearly impossible for buyers to get a genuine read on the dynamics of the company, especially the flow of communication, the level of collaboration, and the design and execution of strategy. Thus, at a time when buyers cannot conduct their on-site process, a successful due diligence review requires revisiting other core elements in a robust, best practice diligence methodology.
In terms of background checks, this means not just looking for red flags and checking more boxes, but taking a strategic, analytical look through open source information to get a better read on management and what they bring to the table. With a trained eye, and not limiting thinking via checklists, patterns are identified that offer invaluable insight on a management’s track record, character, and fitness to execute an investment thesis. These findings can help fill the information void from not meeting face-to-face.
Although COVID-19 has forced buyers to limit in-person management meetings and site visits, private due diligence firms also offer another solution in addition to public records to address the resulting loss of key insights. That solution is back channel references, because the old refrain that a company’s greatest assets are its people holds true. Yet, the most untapped sources of information are the employees who have left the company, who were hired by a competitor, who quit, or who left the industry. These individuals speak more freely, and often with more objectivity and nuanced perspectives than current employees.
Although private equity buyers have always acknowledged the value that back channel references can have, the remote conditions under which deals are currently being conducted necessitate that this exercise becomes a staple of the review process.
In our experience, people have always been willing to share their experiences and insight. Private equity firms should not underestimate the power of the question “What would you do if this was your company?” Barbara, the previous human resources manager, has plenty to say on the matter. As does Janine, the former head of sales, and John, the former accountant. And Mrs. Giles, the former executive assistant, can go on for days about the CEO.
Investments hinge on the strength of management, their strategy, human capital, and culture, as much as on the company’s product, service, and market opportunity. Beyond diving deeper into the public record, back channel references have been the most effective means of gaining additional visibility under the hood. Back channel references can be used not just for identifying red flags, but for detecting skill gaps, immature controls, and whether the company needs to dedicate more resources to a particular sales channel or to divest a non-core distraction.
As we navigate the post COVID-19 realities of M&A, the firms that incorporate the best practices in due diligence will gain a definitive information edge over their peers.