In 2018 Larry Fink, Chairman and CEO of Blackrock, the world’s largest private equity firm, published his annual letter to CEOs. The letter was titled ‘A Sense of Purpose’ and its contents have stirred many responses from within the investment business.

Mr Fink explained that it is no longer sustainable for brands in this sector to solely focus on business and financial performance. He argues that the sustainability of a private equity brand’s success is now dependent on its ‘social license’ – for example, the organisation’s ability to be empathetic to the environment and other stakeholders.

VIM Group CEO Marc Cloosterman explained his observations, to the Global Banking & Finance Review, on this major shift, with recommendations for how the branding and communications sector might respond.

Brand Management

1. What does this new thinking about the character and purpose of a brand mean?

Within global corporate communications departments, thinking about the character of the company is nothing new. My colleagues at the A.W. Page Society have engaged with this subject intensively over the past few years. Our president Roger Bolton recently published his latest book on the new era of the Chief Communications Officer, and it offers some interesting food for thought.

What is new is that the financial world – dominated by Anglo-American thinking – is pointing out that there is more to it than quarterly results. Larry Fink’s letter makes clear that Blackrock has understood that focusing on bare business results alone is simply no longer sustainable. Without good relationships with all stakeholders, and without a sense of purpose, a company will not be able to keep growing over time.

2. New opportunities for brand leaders

This is a major opportunity for brand leaders to take the subject further, because they are the ones who have long championed this way of thinking, even when it was not always recognised at board level. Brand leaders now have the chance to show their important contribution to business success – and to achieve even more.

One of the challenges here is raising awareness in the boardroom and finding the right “language”. Larry Fink talks about creating a social purpose in order to sustain business operations, not about communication or branding. This subject belongs firmly at board level.

3. Bringing financial brand value into the boardroom

Among board members it is widely understood that a brand is a company’s largest intangible asset. According to Brand Finance (2017), brand value accounts for around 18% of the market capitalisation of the world’s largest companies. A good way to gain attention in the boardroom could be to use the leverage of the financial value of communication and brand. Among brand leaders we see that financial brand value is the most frequently used argument when requesting a meeting with the board.

Another interesting semantic aspect is the use of the word “license” in “license to operate”. Over the years in my advisory work I have dealt with many boards, and I have seen that the word “license” has a remarkable effect: it is comfortable business jargon for something valuable. It is a financial representation of future cash flows, derived mainly from revenue. The greatest interest arises when a brand can generate revenue – when it can be licensed. Either with external stakeholders, to generate growth, or with internal stakeholders, through brand management.

4. Getting brand into the top 5 metrics of private equity firms: brand purpose

The real challenge will now be the framework investors use to select their investments, particularly in private equity. Typically they start by looking at metrics such as market share, growth prospects, capacity for innovation, human capital and so on. Brand and its social purpose are not represented in the top 5 metrics.

Over the years, VIM Group has worked for many private equity firms, helping them build the business case for the branding of a target acquisition – usually well before the acquisition and the tender itself. We also supported our clients in implementing the new brand. This has proved an excellent way of bringing the role of brand in future success into both the decision-makers’ considerations and the tender process for the acquisition.

5. A step in the right direction

What we have noticed recently is that some of the large private equity firms – Carlyle, for example – have grown their own communications departments into fully fledged business units. Without much fanfare, but noticeably. It seems that Blackrock is not the only one to have spotted how the environment is changing: the private equity firms themselves have already made their first adjustments.

The IFRS accounting standards have helped us over the past decade too. These principles govern mandatory reporting for listed companies. Since 2005, companies that choose to retain their brands in an acquisition have had to state the financial value of the acquired brand on their balance sheet. Although this creates an inequality, because in-house created and owned brands may not be recognised, it is a major step in the right direction: it does account for the brand value of the acquired brand.

All in all, this is a great insight from Mr Fink and his team, and I would like to commend the understanding expressed in their annual CEO letter. I look forward to others following their example.