CoreBrand featured on Intrabond Capital

14 April 2011

Original article at: Intrabond Capital U.S.

What is Corporate Brand?

A "corporate brand" is defined as "everything a company says and does" and this includes "whether those communications are planned or unplanned."

Since the definition is so broad, traditional thinking says the responsibility for the company's image and reputation reside with the chief executive officer. Certainly, there is logic to this, as the CEO is responsible for managing company performance. Managing corporate performance includes meeting financial goals. Doing so often requires fine-tuning or even changing direction of the corporate brand.

Who Should Manage the Corporate Brand?

Long-term strategic brand building can have a significant impact on the financial performance of a company. Understanding the dynamics of the economy, your industry and your direct peer group in an ongoing, structured basis is critical to managing a corporate brand.

When a company does not actively manage its corporate brand, the logic and cohesion of the company's strategic direction loses resonance among management and employees. This creates "drag" on the company, which eventually leads to underperformance of the company's financial performance, including its stock price.

Corporate brand programs are essential for most corporations, but especially holding companies. These programs -- which are so important to projecting the strategic direction -- should be protected and approved for funding at the board of directors' level. Corporate brands are long-term investments with returns best measured over years, not by quarters.

The corporate brand is the communication of the strategic direction of the company. To manage this important intangible asset, the brand must be viewed somewhat differently than other company assets. Communicating the corporate brand is critical to a company's success and should supersede the domain of the corporate hierarchy. Giving the board oversight for the corporate brand does not mean board members should get into the trenches on execution of corporate brand campaigns. Rather, they should be actively involved in understanding and managing the strategic intent of the long-term health of the corporate brand.

CEOs and CMOs might argue this infringes on their territory, but the impact of the corporate brand on market capitalization makes it an exception that deserves the attention and active involvement of the board of directors.

The board's engagement also creates a healthy check and balance in brand management. For instance, some senior executives underestimate the tremendous value of this intangible asset. Others have difficulty understanding how to maximize the potential return, which can often be a significant driver of corporate value.

The board of directors can balance these missed opportunities. Boards should have oversight and ultimate responsibility for the long-term health, vitality and value creation of the corporate brand. The board should expect a CEO to develop a plan to build and nurture the corporate brand and to report on its value on a quarterly basis.

Corporate Branding and Its Impact on Stock Performance

Extensive proprietary research conducted by CoreBrand, which tracks the relationship between brand value and stock performance, show a direct relationship between the strength of the corporate brand and stock performance.

Corporate brand equity value is a stable, predictable and identifiable value that we believe should appear on the balance sheet. At the very least, the value should be reported in the footnotes of annual reports. Similar to the way oil companies report known reserves, or pharmaceutical companies report drugs in development. At this time, corporate brand equity value isn't part of the Generally Accepted Accounting Principles (GAAP) and, therefore, might be met with some resistance, despite representing significant corporate value.

CoreBrand's twenty-year quantitative research study and regression models (collectively called the Corporate Branding Index®), provide continuous data and insights into how much the corporate brand impacts the stock side of the value equation for more than 800 companies, across 49 industries. This research and models identify the corporate brand is an intangible asset that:

• Represents the reputation portion of goodwill;
• Can be accurately and consistently measured;
• Can be accurately and consistently valued;
• Can be compared to competitive companies and industries;
• Can be managed like other assets-including budgeting;
• Can grow or lose value over time;
• Can be evaluated on a ROI basis;
• Can be used as a company-wide management tool; and
• Provides a dashboard measure on the health and vitality of the company.

This criteria happens to coincide with the requirements the Financial Accounting Standards Board (FASB) indicate are necessary for any new proposed financial standards to be considered by the International Accounting Standards Board (IASB).

The accounting world is going through significant changes. These are changes investors, employees, management and the board need to understand more clearly. Understanding the value of corporate branding, with accounting standards set up to help manage it over time, will go a long way addressing the changes underway in the accounting world.

CoreBrand's analysis identifies corporate brand equity accounts for 5% to 7% of market capitalization, on average, across the 800 US companies measured. That is a value of more than$2 billion for the average company in the database, and averaging more than $10 billion for the top 100 companies in our research study.

Brand equity can also vary significantly by type of industry and general economic conditions. For some industries, like building materials, the brand has relatively low impact, with only a 2% average impact on market capitalization. In the beverage industry, however, the corporate brand plays a major role, showing an 11% on average impact on market capitalization.

Creating a dashboard measure for the CEO and the board

The first step towards successfully understanding this data is to examine a company in the context of its industry peer group. Comparing a firm's quarterly brand equity value against its peer group is a perfect dashboard measure of the health, vitality and value of the corporate brand.

In the following example, the client company already had an advantage over its peer group, but wanted to expand that competitive advantage. A $24 million communications campaign was budgeted to build the corporate brand. During one year, brand equity improved 2.1% in market capitalization relative to the competition.

The Brand is a Business Asset

Another argument for a board's responsibility for the brand is that many CEOs and CFOs tend to underfund their marketing programs, which - when properly funded -- create value. The problem is they tend to look at the corporate marketing budget as an expense and not as an investment. This results when a company lacks reliable financial metrics that tie marketing performance to growth and ROI. This lack of standard financial metrics creates a chasm between chief marketing officers (CMOs) and CEOs/CFOs. Understanding the significant financial value relating to the management of the corporate brand, as well as a systematic method to evaluate improvements in perception, results in improved financial performance. Brand budgets can be based upon potential value creation. Hence, corporate branding is an investment, not an expense.

The brand is a business asset, which can-and should-be managed over time in the same manner as any other business asset. While no two companies are exactly alike, it is important to develop a standard set of metrics and reporting methods to determine the financial value of the company brand and identify specific strategies, including budget allocation, to increase a company's "brand power."

The Coca-Cola Company enjoys the highest brand equity in the Corporate Branding Index, with nearly 21% of its market capitalization relating to the corporate brand. A company like this has the most to gain from a more active management of their brand. The financial impact of the brand, however, even in low-sensitivity companies, can increase dramatically if managed through consistent communications over time.

Product Brands Drive Revenue. Corporate Brands Drive Business.

CEOs and CFOs no longer need to wonder where the investment in the brand is going. Brand investments can be held to the same standards of accountability as every other aspect of business.

Consistent reporting to the board of directors of the corporate brand as an identifiable intangible asset makes it one of the most valuable assets a company possesses. It's a powerful engine that can drive a business forward.

Branding a company pays dividends. The results are dramatic and include measurable correlations between brand recognition, sales growth and stock value for entire industries, as well as individual companies.

CMOs, CEOs, CFOs, and the board of directors now have the ability to track investments in corporate communications to demonstrate success with ROI measures-the gold standard for corporate decisions.

Recommendations to Build and Manage Sustainable Brand Value

We advocate that corporate brands have value and should be managed like any other asset. Fundamental to this, we recommend:

• The board should "own" the corporate brand - retaining an oversight role.
• The board should insist the CEO measure and report on the value of the corporate brand on a quarterly basis.
• Continuously measure the corporate brand to identify any weaknesses to the corporate business strategy before it's too late to correct them.
• Brand equity valuation will identify the significant value of the corporate brand. Understand that value to help determine if an investment in building the corporate brand is worth the expense.
• Manage and compare your corporate brand to competitive companies as well as evaluate it against peers and industries.

For more information about Intrabond Capital U.S., Inc. and its board services, contact us at 415-513-0903 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .