JY&A Consulting
https://jya.co
With confidence in traditional stock analysis hurt, a better and more long-term way could be examining corporations’ brands
Jack Yan
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 companies—like this one—that
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
information—oft-cited in this publication—that 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 press—and particular kudos
to the Wall Street Journal for its superb coverage—it 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 brand—often, 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-on—as we
frequently found during the boom years—and 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 proof—I
know, I wrote it—that 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 it—and we might have by the time you read this—we
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 Volvo—all 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.
•
Notes
1. Kelly: The Divine Right of Capital:
Dethroning the Corporate Aristocracy. San Francisco: Berrett–Koehler
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 brands—half off!',
Fortune, vol. 146, no. 4, September 2, 2002, pp. 182–4.
8. Ibid., at p. 184.
9. Chancellor: 'Millennial market', Prospect,
November 2001, pp. 28–33, 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.