5 observations on the growing importance of brand purpose in private equity

1.What is the new thinking around corporate character and purpose?

Within the global corporate communications discipline the thinking around corporate character isn’t new at all. My fellow members of the A.W. Page Society have been all over it over the years, and most recently our president, Roger Bolton, published his latest book on the New Era of the Chief Communications Officer, which addresses the topic and makes for a really good read.

What is new, is that – finally – the financial world, dominated by Anglo-American governance, is putting emphasis on the fact that there’s more than quarterly results. In fact, from Mr Fink’s letter you can see that Blackrock have understood that it’s just no longer sustainable to focus on business performance alone. Without good relationships with all stakeholders, and without a sense of purpose, a business will simply no longer be able to thrive in the long run.

2. New opportunities for CCOs and Brand Directors

This a huge opportunity for Chief Communication Officers (CCO) and Brand Directors to step up their game as they have championed this way of thinking for the longest, however it hasn’t always been recognised at board level. Now CCOs and Brand Directors have the opportunity to show their worth, to make a difference.

One of the challenges to do this is the lack of the right language being used in the boardroom. As you can see in the letter from Mr Fink, he’s speaking about creating a social purpose to sustain its license to operate, not talking about communications or branding. We need to bring these topics and the right language back into the board room.

 3. Bringing the financial brand value to the board room table

It’s widely understood amongst board members that a brand is an organisations largest intangible asset. According to Brand Finance (2017) the value of the brand value makes up 18% of the market capitalisation of the biggest companies in the world. A good way to create focus in the board room could be to use the lever of the financial value of communications and the brand. Amongst CCOs, CMOs and Brand Directors we see that financial brand value is the most common tool to stipulate conversation.

Another interesting semantic perspective is the use of the word ‘license’ in ‘license to operate’. During my consulting work with boards over the years, I’ve seen that the word ‘license’ resonates extremely well, it’s smooth business jargon for something valuable. It’s a financial reflection of future cash flows, mostly derived from revenue. One of the topics that mostly raised interest is how a brand can generate income (be licensed), either with external stakeholders (to manage growth) and with internal stakeholders (for brand management).

4. Getting the brand in the top 5 of private equity firm

Now, the real challenge will be how investors, and more specifically private equity parties, typically go about choosing their investments. Typically, they start by considering market share, growth perspective, innovative capability and sector, human capital etc. So far, brand and social purpose are nowhere to be seen in the top 5 considerations.

Over the years, with VIM Group, we’ve been working for a lot of private equity firms, helping them to build the business case for branding of the targeted acquisition, mostly pre-acquisition and bidding, and obviously afterwards in the roll-out of such branding. This has proven an excellent way to tie the role of brand for future success into the consideration set of the decision makers, as well as into the bidding processes.

5. Steps into the right direction

What I’ve noticed lately is that some of the big private equity firms, Carlyle for example, have been noticeably, but smoothly, ramping up their own communications function over the past years, to become a fully-fledged business function. It seems it’s not just Blackrock who’ve been seeing the changing environment as private equity firms themselves have been adopting good practice in the first place.

The IFRS accounting principles have also been helping us over the last decade or so. The principles guide the obligatory reporting for listed companies. Since 2005 companies who acquire others and decide to keep their brands, have to post the financial value of the acquired brand into their balance sheet. Although this is causing disparity with the non-allowed posting into the balance sheet of internally developed and owned brands, it’s been a big step into the right direction, by bringing in acquired brand value in sight. The more this will happen, the more audiences will take notice of brands and their respective environments.

All in all, this is great insight from Mr Fink and his team and I’d like to praise their insight expressed in their annual CEO letter. I’m looking forward to others to follow suit.