With confidence in traditional stock analysis hurt, a better and more long-term way could be examining corporations brands
Jack Yan is founder and CEO of Jack Yan & Associates and president of JY&A Consulting.
WHAT THOSE of us advocating human branding, moral globalizing and similar issues
have in common is an uncertainty about our direction. Sometimes, there's precious
little verification. For some of us who've began in the field earlier, we might
not even have had empirical proof of branding's effects, only anecdotal evidence.
And for almost all of us, we've been frustrated by a system that gives little
support to brand values when it comes to showing the public how successful a
firm is. It could change, beginning now.
Marjorie Kelly in The Divine Right of Capital1 put it well when she showed that firms listed employees' salaries as liabilities. They have no incentive to clean up their act because those are costs. Costs hurt what the corporation is meant to do: make money for shareholders. Kelly speaks from experience: with 15 years as the founding editor of Business Ethics, she's discovered that in most cases, firms don't act for societal good.
At first glance, this may seem at odds with what some of us have been advocating through documents such as the Medinge Communiqué,2 the brand manifesto3 and my numerous papers. I see it as as a complementary force. Kelly exposes the stupidity of the current system while I believe those of us wanting corporations working for the societal good can form a consumer army. This is a double-threat on the current system and will force a change for the good of capitalism.
Have we been there and dismissed it? I don't think so. We may have seen Wall Street triumph in the 1990s while the going was good, but since then, the bubble has burst. It was going to burst long before President Bush got elected: everything began looking untenable when we saw companies' share prices well exceeding their book values, beyond that of 1929 levels.4
We've now a group of brand-savvy consumers who can see through a lot of the fluff. They are cynical about how stock analysts told them to buy Enron the day before everything went belly-up there. We can place considerable confidence in Generations X and Y, for their observational skills and media knowledge. They aren't easily fooled.
More than one author has said that branding is going to be very important in 2003. It's not just the companieslike this onethat have something to gain from branding. There's real interest in it even from the mass media, highlighted when a few of us were interviewed for CNN.com last quarter.5 There seems to be some vague agreement from those observing us from outside that the hard sell is out and that brands, fortunately (and accurately), haven't come under the banner of the hard sell.
We have seen more fascination with brand valuation as Interbrand and Business Week provide annual surveys on our power brands. Even Google keeps tabs on the most-searched brands, and it's interesting to see how they differ: consumers have a different idea of value from even established brand valuation specialists.6
Most importantly, there's an emerging acknowledgement from the establishment, something that was bound to happen as more marketers got on boards of directors.
At least one company believes you can play the market depending on brands. BrandEconomics, a unit of New York consulting firm Stern Stewart & Co., takes Young & Rubicam's brand health ratings and examines their earning potential, working out its 'intrinsic value'.7 Then, an 'intangible value' is worked out based around the value the market places on its brand and related intangibles. If it's below the intrinsic value, then it's a good buy, providing the company gets some basics right.
BrandEconomics told Fortune that it believes Disney's investors are getting the company for $7·4 billion below the value it should command, and the company could get its proper worth if its management was better. 'Buying Disney now is a bet on a takeover or new management.'8 The market values Kodak's brand at a poor
One way to take this is: get the brand right and market investment will follow. In the past, investors might have only looked at more conventional data on earnings, but their lack of confidence in 2003 is easily explained. Enron and WorldCom alone nearly quadrupled their reported operating profits and it's a cinch that more than some of it was overstated. Then add the disturbing informationoft-cited in this publicationthat Enron was still recommended as a buy by those that should have known better. Indeed, Edward Chancellor concluded that 'if an investor had acted contrary to analysts' advice, his portfolio would have outperformed the market by nearly 80 per cent.'9
'In the pages of the business pressand particular kudos to the Wall Street Journal for its superb coverageit is unmistakably clear that this ethics debacle is the deepest, most disturbing, most wide-reaching crisis capitalism has faced since the Great Depression,' wrote Kelly in Business Ethics.10
Extending the argument, conventional market valuations as they now are have little relation on the earnings' potential of a company anyway. It may be safer to look at the integrity of the brand and the potential that could flow from that.
It makes a lot of sense to those of us who understand the flow between vision, brand, image and earnings. At the very basic level, if a brand is managed well, the signals it sends to investors and consumers should be identical. Consumers should buy because they find that the company has really delivered what it said it would. Investors see that what was promised in an earlier report has been realized. Investment follows.
There are more subtle signals that could include how well a consumer web site expresses the graphical side of the brandoften, consistency is a sure sign that things are going well, because the departments are talking to one another. Get a web site that looks like an expensive add-onas we frequently found during the boom yearsand you know something is very wrong, even if the market is telling you that the share price is going up and up. We knew it then and we said it then: people were going to get hurt.
Or even logo changes: Amazon.com had a high number of them, suggesting things weren't rosy. It's only now that it's settled on one and the Amazon system is flowing neatly, suggesting something is now right. After we analyse a few other things, we might be able to say, brand-wise, that Amazon.com is a worthy buy.
This is a simplistic look, and if we were to go into brand-based stock analysis, we'd add in a heck of a lot more. We would look at the corporate system itself and the organizational structure. How clued up is everyone on where the corporation is heading? What are the links between functions? If the brand has been communicated at these levels, then there's academic proofI know, I wrote itthat indicates a buyable company.
With our expertise, we could easily get in to this, and we'd charge fees that didn't have any connection to whether a company bought or sold, since we don't have a linked department that offers those services. In fact, if we did get into itand we might have by the time you read thiswe would consciously not have such a department.
This brand-based view has its dangers, just as any new idea can be co-opted by a commercial establishment that doesn't know better. For a start, we could see stock analysts becoming brand analysts and doing the same thing. We've already seen the traditional management consultancies, design companies and even accounting firms move in on branding, and not doing particularly well, offering same-again advice. Some mergers and acquisitions were arguably driven by brands: their presence as intangibles drove up the share price. Ford bought into Aston Martin Lagonda, Jaguar, Land Rover and Volvoall very prestigious with brand-defined market niches. Examine FMCG companies and you'll find that brands probably make up the majority of their total capitalization.
The danger is that since the corporate system has been squeezing payroll for years, it might now try to see (or continue seeing) what it can do in branding. Worryingly, this could be made to be a continuation of an old trend. Instead of overstating profits, a company could overstate the value of its brands. We know of one that has been doing it for years.
To investors in 2003, I say, whatever the analysis method, tread carefully. As teenager Jonathan Lebed found out, the share price can be illusory.11 However, for long-term gains, there are ways to get a snapshot by digging just a bit deeper. As in real life, numbers don't tell you that much. But look at the people and how well the brand has united them, and you may be on to just how successful the corporation is.
1. Kelly: The Divine Right of Capital: Dethroning the Corporate Aristocracy. San Francisco: BerrettKoehler 2001.
2. Gad, van Gelder, Ind, Kitchin, Macrae, Moore, Moore, Rosencreutz and Yan: 'Financial measures have failed; branding is the way forward, say experts', press release, <http://www.jyanet.com/0803pr0.htm>.
3. Yan, based on Gad, van Gelder, Ind, Kitchin, Macrae, Moore, Moore, Rosencreutz and Yan: 'The brand manifesto', AllaboutBranding.com, November 2002, <http://allaboutbranding.com/index.lasso?article=278>; q.v. Yan: 'Brand 2010', Agenda, no. 13, first quarter 2003.
4. See Kelly, op. cit., at p. 46.
5. Botelho: 'The brand name game', CNN.com, November 15, 2002, <http://www.cnn.com/2002/US/11/15/sproject.hs02.brands/>; Botelho: 'Make or break season', CNN.com, November 15, 2002, <http://www.cnn.com/2002/US/11/15/sproject.hs02.plan/>.
6. Lee: 'Ga-ga over Google','Icon' supplement, The Age, January 3, 2003, <http://www.theage.com.au/articles/2003/01/03/1041196779397.html>.
7. Tully: 'Famous brandshalf off!', Fortune, vol. 146, no. 4, September 2, 2002, pp. 1824.
8. Ibid., at p. 184.
9. Chancellor: 'Millennial market', Prospect, November 2001, pp. 2833, at p. 30.
10. Kelly: 'Constituting a democratic economy: plans for the Economic Democracy Project', Business Ethics, fall 2002.
11. Lewis: Next: the Future Just Happened. New York: W. W. Norton 2001, cap. 1.