The CMO’s defense against the shareholder activist: Brand facts

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This piece originally appeared on The CMO Club.

An onslaught of activist investors clamoring for their companies to be split into pieces or combined into one, larger organization is a trend that does not look to be stopping any time soon. As the co-CEO of a strategic branding firm, I regularly counsel companies under pressure from activist shareholders and hedge funds regarding the implications of a spinoff for a corporate brand. Why? Because the frequently overlooked brand is an asset with real value for stakeholders, which makes it a critical component in the conversation to be had with activists. CEOs who do not have a clear understanding of their brand strengths risk being unprepared for confrontations with activists and missing out on unlocking significant value for shareholders in the event of a spinoff.

Here is what you need to know about your brand to leverage it appropriately in two distinct scenarios.

#1: Proving that your brand is better together

The challenge for a management team that believes their enterprise is more valuable intact is to prove it with data. This is where a comprehensive understanding of a brand portfolio and a bulletproof fact set around customer purchase drivers come in.

CEOs and their teams should be able to answer these questions for their board as well as themselves:

  • Are we fully leveraging our enterprise brand as it currently exists? You should know whether customers actually understand the full breadth of capabilities the enterprise brand represents. Put simply, they must see that the standalone business units they admire are actually key parts of a larger enterprise and, moreover, significant parts of their business-unit value proposition are dependent on their parent company. Beyond that, it is imperative to demonstrate how the combination of business verticals creates synergistic value for the enterprise.
  • Do our companies close more deals together than they would apart? Determine if customers and prospects are more likely to buy from subsidiary business units when they are aware that they are part of the enterprise brand. Obtain data that shows how brand perceptions differ from region to region with particular clarity around growth markets. Seek to understand what aspects of the parent brand are most compelling to key audiences and how expertise in one business segment drives sales in another. Ascertain whether talented college graduates are more likely to accept job offers because of this relationship. This will help you uncover the true value of relationships between brands and of keeping the enterprise unified.
  • Do we have a strategy for building a stronger parent brand without diluting well-established business unit brand equity? Research is revealing—it can show you what matters. By conducting an overall brand audit, you will be able to determine if your messaging is effectively supporting your strategy at all touchpoints. Research will help you understand if building a strong parent brand will help individual business units and how the parent brand can leverage the equity of business units without diluting them.

All these questions can be addressed with brand-specific research, and can inform responses to activists. The strategies that ensure the answer is “Yes” to these questions can help keep your company off activists’ target lists in the first place.

#2: When the activist gains favor and a split is imminent

When the Board decides to spin, an entirely different set of questions needs to be answered. Look at brands such as Motorola and McGraw-Hill, both of which split into separate, publically traded companies. For them, it was critical to consider a few key brand questions to ensure that the brands realized their full potential following the spinoff.

  • How will the brand name be handled? Who retains the brand name? In the case of a spinoff this can become messy. Two separate entities that share the same brand name can be confusing to customers unless carefully managed. Take for example, Motorola. The company spun off its venerable consumer-facing mobile and technology business, which was eventually acquired by Google. This resulted in two discrete and unrelated companies and brands—Motorola Mobility and Motorola Solutions. Due to carefully crafted brand frameworks and guidelines, both companies benefited from the strong Motorola identity. Be aware that this approach can result in unforeseen confusion, especially for customers. Draft a brand strategy in advance to manage names, trademarks and advertising.
  • What should be the brand story of these brand new companies? Let’s look at McGraw-Hill. Like Motorola, it settled upon a shared name—McGraw Hill Financial (which runs Standard & Poor’s rating agency) and McGraw Hill Education, which is a publisher of print and digital learning solutions. With the split imminent, it was important for each resulting enterprise to develop a unique and differentiated story for its customers and employees. This allowed each to draw on heritage while focusing on future growth. To add further clarity, and unlike Motorola, each company created new and different visual trademarks. Only a year after the rebrand of McGraw Hill Financial, its stock was at an all-time high.

In either scenario, a deep understanding of brand strength is critical to the conversation to be had with activists. Getting the answers to these key questions will help open a new dialogue and facilitate a conversation that considers the whole brand story—and ultimately, help maximize shareholder value.

Howard Belk is Co-CEO and Chief Creative Officer at Siegel+Gale. Follow him on Twitter: @HowardBelk

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