Commercial Law International

By: Ainsley Brown

This forms part of the Middle Passage Law Series on Law Is Cool.

American International Group, better know by its acronym AIG, it seems these days can rarely catch a break. It just seems negative news follows negative news for this company. This time the negative news for this too big to fail company – deeply wounded by the global credit crunch and later recession – has two of its units being accused of racial discrimination in their lending practices.

It is important to note that AIG has not been found guilty of anything; in fact it wasn’t even accused of any wrong doing.

WHAT?

I know, I know, it seem like I am saying that AIG is involved yet not involved in this case. And yes that is exactly what I am saying.

All of this may seem totally contradictory but let me assure you it is not. What we have here is a classic illustration of legal reality vs. public perception of a company’s brand. In order to be successful companies have to be mindful of the differences between these two concepts and effectively manage their interrelation.

The Department of Justice (DOJ) allegations were never directed at AIG, the parent company, but were instead directed at two of its subsidiaries –AIG Federal Savings Bank (FSB) and Willmington Finance Incorporated (WFI). Both banks were accused of not sufficiently monitoring the activities of mortgage brokers who sold mortgages that they funded. The brokers were, according to the DOJ, offered African-American borrowers less favorably borrowing terms than similarly financially situated whites. The two have agreed to settle the case with the DOJ and have agreed to pay at least $US6.1 million without admitting liability as part of the terms of settlement.

The case broke no new ground as far as banks in the US being accused of racial against minorities, namely African-American and Latino-Americans, in fact similar settlements or even full blown litigation involving other US banks will surely be making the headlines in the near future. The case however did break new legal ground in that for the first time US authorities held a lender directly responsible for the racial discriminatory acts of brokers. As a consequence, from now on banks will have a positive duty to monitor the activities/policies of brokers that they fund, to the best of their ability, in order to ensure that they are not using race to determine borrowing terms. This duty also of course carries with the co-duty to take positive action whenever a bank believes that a broker is using race.

From a strict legal perspective AIG, the parent, hands remain totally clean is this matter. It is important to reiterate that AIG was never accused of anything; the allegations were solely directed at the two subsidiaries. And no this is not a simple matter of splitting hairs, while related all three companies are separate. The legal concept of the corporate veil - the independent legal identity of companies, even if related – is a fundamental one in corporate law. The corporate veil is best understood as a shield that is used to protect all the right that come with incorporation. This is not to say that it can never be lifted/pierced, for it can, but this is only done in rear and specific instances where for example fraud is alleged or where for some reason the directing/controlling mind of a corporation needs to be identified.

However, these allegations go beyond strictures of the corporate veil and this is where public perception of the brand and effective management of that brand become important.  AIG and its army of brand management specialists both know that the general public are often not so discerning as to make the distinction between parent and subsidiary; as far as the public is concerned AIG is AIG.  This is the reason I believe that there was such a quick settlement – the last thing AIG, the parent, needs is a protracted legal battle involving accusations of racial discrimination, albeit involving subsidiaries. This would be a public relations nightmare.

By: Ainsley Brown

Dark and lovely...she is worth it

The cosmetics giant, L’Oreal, seeks to expand in the largely untapped African market – or I should say African markets, as the continent is made up of many individual national and regional markets.

I must say that I find this a very interesting business strategy by a global titian. There is also, I must admit a touch of irony here. Commercial Law International has covered L’Oreal before, mainly on its global protracted battle against eBay to protect its brands against knock-offs. However, and this is where irony comes in, there was also a not so flattering story of L’Oreal being found guilty of racial discrimination in France.

The case basically boiled down to L’Oreal deciding that in order to sell its products to the white majority, radicalized minorities were not worth it. L’Oreal simply responded to a perceived market demand – nay, need – that Black, Arab and Asian women were not best suited to sell its products. Dark just wasn’t seen as being lovely.

What a dramatic reversal, with this new African drive, it would seem that Africans are indeed worth it after all.

With subsidiaries in Egypt, Ghana, Morocco and South Africa and its products available in most countries on the continent, L’Oreal hopes to tap into markets where costumers are eager for quality products specifically aimed at them. Enter L’Oreal with its Dark and Lovely brand – a series of body locations specifically developed fro dark skin.

Dark and lovely indeed – because they are worth it.

By: Ainsley Brown

This is part of the Middle Passage Law Series on Law is Cool.

Why am I wearing all black today?

Am I in mourning? No, not exactly. Then why?

Well it is August 1: Emancipation Day.

I am wearing black today not to so much mourn but to remember. To remember that it was today 175 years ago that the British set my ancestors free – well in a manner, they still had six years of apprenticeship to look forward to. Why? Because being free people made them some how forget all the skills acquired during a lifetime of toil.

The Slavery Abolition Act 1833 took effect one year after passage this day 1834 and outlawed slavery in the British empire – including British North America aka Canada – with the exception of all but a hand fully of territories.

So I remember – let’s remember together.

By: Ainsley Brown

This is part of the Middle Passage Law Series and is cross posted on Law Is Cool.

Now I know I have not posted a piece in this series in quite some time and for that I apologize – I have no excuse.

It may seem that I am either picking on L´Oreal, as I have tracked their recent legal battles with eBay on Commercial Law International, either that or I have an obsession with makeup. Let me assure you that neither in the case. With that over, let´s go to the story.

The La Cour de Cassation, the highest court in France, upheld the ruling by the Paris Court of Appeal, finding L´Oreal guilty of racial discrimination. The court also found Adecco, a temp-employment agency, involved through its Districom division, guilty and fined both it and L´Oreal €30,000. The court however, sent back to the Court of Appeal for its reconsideration the €30,000 each in damages payable to SOS Racisme, an anti-racism public interest group that brought the case.

The ruling ends three years of legal wrangling and is no doubt a huge blemish for L´Oreal.

The main issue of fact in the case was BBR. Yes, BBR. What in the world is BBR, you ask?

BBR or blue, blanc, rouge – the colors of the French flag. Now if you were to ask me I would have simply thought that this was a general patriotic gesture, however, it hides a much more sinister meaning. It, as the Times reports is an expression ¨widely recognized in the French recruitment world as code for white French people born to white French parents.¨ This would of course exclude not only the 4 million ethnic minorities current living in France but also any whites not born of pure French stock, including presumably none other than the French President himself Nicolas Sarkozy whose father is Hungarian.

It would seem that word got out that L´Oreal did not want any black, Asian or Arab sales staff to promote Fructis Style, a hair care product made by its Garnier division. Only BBR would do, I guess – because they are worth it – to play on L´Oreal´s because you are worth it ads. But, why?

And this for me is the most troubling aspect of this case. The BBR move by L´Oreal hints at a much larger and disquieting issue in French society. Yes, racism, this is very obvious but much more than that it is brand of racism that operates not just on the fringes of society but at its heart – in the labour and retail markets – while at the same time managing to remain in the shadows .

How is it that this BBR policy that so pervades the French employment and retail markets is only now seeing the light of day?

Like I said, very troubling indeed.

However, a silver lining to all of this is that BBR has now been fully exposed in a court of law. From now on the racial prejudice that operates in the French labour and retail markets can no longer be subject to denials of anecdote or conjecture. The court record stands as an official record by the state that BBR does exist and is a proven fact.

As for L´Oreal, this cannot be good for its brand management. For a company that so fiercely defends its brands, just take a look at its battles with eBay, this was not only a poorly conceived recruitment drive but also incorrectly defended case – this is not to be read as a dig at L´Oreal´s lawyers, not at all, I am sure they represented their client the best way they could, however, I am unreservedly criticizing L´Oreal.

L´Oreal forgot that it´s all about the brand. What they sell is much more than simply a product, it is a lifestyle, it is instant gratification, it is control and it is improved self-confidence through a line of beauty products designed for one thing – to improve the true beauty that is you. Nothing can be allowed tarnish the brand less they lose sales and market share.

If this is the basic market reality of the L´Oreal brand, and for that matter any brand, why would you maintain the spectacle of a public trial for three years with a case that even if it comes out in your favor could still blemish the brand?

There is no doubt that L´Oreal´s PR team is hard at work trying to figure out how to either make this go away or finding an angle on how to spin this. A word to the wise, L´Oreal, you have already been found guilty, it would be an exercise in futility to deny any part of this. In fact such a denial, in whole or in part, direct or indirect, could result in a backlash against the brand. It would be better to fully accept culpability, say sorry and take positive and no doubt public steps in order to combat BBR or other forms of discrimination. That my friend is your angle.

By Charles Wanguhu

In original multinational thinking the lack of a significant middle class meant that investment in some emerging markets was considered not viable. The financial crisis has sprung up some few suprises.

While AIG parent company has been largely reliant on US government funds their subsidiaries in Kenya, South Africa and Uganda have been financially strong and have been declaring profits. To further embolden them they have now declared an intention to break away from their parent company AIG inc.

It seems that with initial high risks of working in emerging markets their subsidiaries had employed a robust risk strategy including sufficient reserves. The mother company operating in an increasingly deregulated market seem to have been less cautious. The subsidiaries have consequently recorded profits enabling them survive in the economic downturn and continue to be viable entities.

Eric Aouani, the chief executive of MediCapital Bank (MCB), is banking on continued growth in Africa markets and  Making inroads in africa