The Board’s Responsibility for the Corporate Brand

The Fortune Brands’ story is one that I know well. We were working with William J. Alley, CEO of American Brands, Inc., along with several of his senior managers, Bob Rukeyser and Roger Baker, when the company made the decision to sell off its tobacco units called, American Tobacco.

It was a smart idea, especially in light of the company’s great consumer product line-up, and the fact that their stock was being held down by its association with tobacco. The problem was that for several years after the sell-off American Brands was still only being tracked by tobacco financial analysts despite the fact the company now had NO tobacco business. Bill and team shared his concern that American Brands was not getting the market recognition of their significant consumer product lines, which included leading market positions in golf, spirits, home and office products.

We were able to prove through research that the American Brands name was closely associated with American Tobacco and that it would be difficult to break the tobacco habit.

Bill’s successor, Tom Hays, took the ball determined to do something about it. American Brands changed its name to Fortune Brands and supported it with a short-lived, but powerful, corporate advertising and internal communications campaign. The campaign was analyzed carefully for the value it brought to the company.

Fortune Brands launched a six-week corporate ad campaign during a relatively quiet period between earnings releases, and without press announcements, or investor relations activities. We compared the stock performance of our client company to the tobacco industry, as well as to the consumer products industry, with which the company preferred to be associated. It was a cohesive campaign that focused on the strengths of the individual product brands that made up of the Fortune Brands family. It provided a vision and raison d’etre for Fortune Brands. At the launch of the new name FO improved dramatically over both industry groups and every company within those groups.

There were additional benefits. Divisional managers were surprised by the reaction of their customers and the expanded relationships. Employees better understood and supported the direction of the company.

This low cost test proved the value of corporate advertising in support of a new vision, and more importantly, it supported the value of the corporate brand. The next step was to build a long-term corporate campaign that supported the strong individual brands in the Fortune Brands portfolio, while supporting the logic and vision of conglomerate industry made up of multiple divisions.

Getting divisional managers to support a long-term corporate campaign proved to be extremely difficult. While senior managers would support free advertising, thus recognizing their brands by the parent corporation, to be asked to pay for such a campaign was unthinkable. The brand managers are responsible for their product brands and that is how their performance is measured. To a divisional manager seeing the stock price improve is nice, but their focus (and bonuses) is usually tied to the performance of their own product brands. This is commendable but it would not help the corporation to meet its goal of gaining the recognition and the PE ratios of a true consumer products company vs. a tobacco company.

When the corporate campaign concluded the stock price, which had peaked, began drifting back down to nearly pre-launch ranges.

Management eventually concluded that despite the proven gains delivered by building a consistent corporate brand, they would not press the issue with their divisional managers. Thus, the die was cast for the eventual break-up of the holding company.

How could the outcome have been different? What would have been the ideal solution? What solution would create the greatest long-term value for the corporation?

Without a corporate brand focus, the logic and cohesion of a holding company loses resonance, eventually leading to underperformance of its stock and increasing pressure to break up the company. Corporate brand campaigns are essential for holding companies. They should be protected and funded at the board of directors’ level. Corporate brands are long-term investments with returns best measured over years, not quarters. CoreBrand has abundant empirical evidence of this value and its direct impact on stock performance. Over a 20-year study of 800 companies across 49 industries we have found this value lies between 5-7% of market capitalization.

To maximize the ROI of this important “intangible” asset, the corporate brand must be viewed somewhat differently than other company assets. The vision for the company and the intent of the corporate brand are critical to a company’s success and should supersede the domain of the corporate hierarchy.

For example, board members should never get into the trenches on the 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 chief marketing officers might argue that this is an infringement 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.

Lessons learned:

  • Corporate brands have value and should be managed like any other important business asset.
  • In a diversified conglomerate the board of directors should “own” the corporate brand.
  • Continuous measurement of the corporate brand will identify weakness to the corporate business strategy before it is too late to correct them.
  • Brand equity valuation will identify the significant value of the corporate brand and understanding that value will help determine if an investment in building the corporate brand is worth the expense.
  • Corporate brands can be managed and compared to competitive companies as well as to be evaluated against peers and industries.