The growing importance of brand purpose in private equity

By Marc Cloosterman, CEO, VIM Group

Earlier this year 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.

Now, this is what we call a paradigm shift. Here are my observations on this major shift, with recommendations for how the branding and communications sector might respond.

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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, 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 to consider than quarterly results in isolation. In fact, from Mr Fink’s letter you can see that Blackrock have understood that it is no longer sustainable to focus on business performance alone. Without good stakeholder relationships, and without a sense of purpose, a business will no longer be able to thrive in the long run.

Marc Cloosterman
Marc Cloosterman

New opportunities for CCOs and Brand Directors

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

One of the challenges in bringing about this change is a 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 a brand’s license to operate,rather than talking about communications or branding. We need to bring these topics and the right language back into the board room. 

Bringing financial brand value to the boardroom table

It’s widely understood amongst board members that a brand is an organisation’s largest intangible asset. According to Brand Finance (2017),brand value makes up 18% of the market capitalisation of the biggest companies in the world. A good way to focus the boardroom on this issue would be to leverage the financial value of the brand and brand communications. Amongst CCOs, CMOs and Brand Directors, we see that financial brand value is the most common tool to stimulate 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 as smooth business jargon for something valuable. It’s also a financial reflection of future cash flows, mostly derived from revenue. One of the topics that has raised interest is how a brand can generate income (be licensed), either with external stakeholders (to manage growth) or with internal stakeholders (for brand management).

Getting brand into the top five considerations of private equity firms

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-five considerations.

Over the years with VIM Group we have worked with 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 considerations of the decision makers, as well as into the bidding processes.

Steps in the right direction

It’s not just Blackrock who are adapting to the changing environment by adopting good practice. I’ve noticed in recent years that some of the big private equity firms, Carlyle for example, have been steadily ramping up their own communications function to become a fully-fledged business function.

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 had 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 in the right direction by bringing acquired brand value into view. The more this happens, 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 seeing whether others follow suit.

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