Today, in SA and internationally, corporate governance features strongly on the agenda of senior management. Its significance is now widely recognized, both for national development and as part of the international financial architecture. To protect society, and investors particularly, good governance requires company directors to act with fairness, accountability, responsibility and transparency in their deliberations and decision-making.
In essence, good governance gives important stakeholders confidence that companies operate under good stewardship. In fact, good governance actually adds shareholder value: according to McKinsey, 84% of global institutional investors would pay a premium for shares in a well-governed company.
The confidence that a company is under good stewardship can be misleading if the same sense of confidence does not extend to how their most important assets are managed.
For many companies, brands are the engines that drive revenue and are often its most valuable assets. Recognition of the importance of brands has contributed to a growing curiosity amongst the analyst community about the marketing prowess of executives and the health and strength of brands.
If brands are the most significant assets owned and operated by many companies, the way that they are managed should be assessed for risk and evaluated in terms of governance principles. In fact, the growing importance of brands has led to an increasingly sophisticated system of brand management, but largely at operational and strategic levels.
At an operational level, brand identity integrity is often rigorously policed. At a strategic level many companies have instituted marketing processes that elevate the sophistication of the strategic process around branding. Examples of this include Unilever with its ABC process, SAB and the SAB Way and Diago's Dweeb process.
But notwithstanding these improvements, brands are not conventional assets, and managing brands is not a science: it is more often a complex and highly subjective endeavour. It involves people and can be 'opinion-intensive'.
The subjective nature of the terrain makes it important that we understand the way in which decisions are made. Most often, companies manage brands by engaging a number of external suppliers. This further increases the complexity. In the worst scenarios, brand management can become politicized where personal power plays and 'faction fighting' determine direction and strategy. Strong relationships with suppliers can both help and hinder the process, as can creative and client egos.
So while significant improvements have been made at the operational and strategic levels of brand management, attention needs to be paid to the integrity of the brand management process and the way in which decisions are made.
Perhaps it is useful to highlight the characteristics and processes of good corporate governance and examine their relevance to the brand management process:
Just as boards of directors are encouraged to commit to a disciplined decision making process, so the principles of rigour and due process should apply to the way in which brand decisions are taken. Disciplined adherence to brand management and stewardship is a crucial first step in brand governance.
While brand management is increasingly frenetic and involves a complicated system of partnerships with suppliers, it is important that lines of accountability and responsibility are always clear. 'Who signs off what', 'what requires the marketing director's approval', and 'what requires MD level or board approval' needs to be agreed and understood.
Accountability is important as it provides the company with an objective means to assess the actions of the various brand stewards. A lack of clarity allows political tension to grow in the system when junior staff find it hard to progress issues without senior sign-off. A fuzzy view on accountability also leads to paralysis where brand decisions are abdicated or deferred to countless committees.
Brand decision-making needs to be free from potential conflicts of interest or bias. This is particularly important in an environment where close working relationships are often necessary to facilitate genuine understanding.
But while strong relationships and a shared set of values between suppliers and clients are often the key ingredient to success, it is also important that this constructive environment is 'governed' by a clear understanding of accountabilities and responsibilities and disciplined adherence to the strategic processes.
Independence also involves ensuring that sufficient objectivity is brought to bear on key brand decisions.
Making brand decisions in an environment dominated by one point of view or continually second guessing one all-important manager could lead to a myopic view, loss of relevance and value destruction. Ensuring diversity and sweeping in the views of key external stakeholders to avoid 'group think' should be encouraged as long as this doesn't paralyze decision making.
While most governance systems suggest companies regularly evaluate risk, brands are not generally specified as a risk worth understanding. This is surprising given their value to most companies as well as the potential risks associated with brands.
While brands are often exposed to crisis risk (e.g. Tylenol) they are also vulnerable to less spectacular risk such as under-investment, a lack of innovation or a lack of expertise on the part of brand managers.
While growth naturally involves risk, brand managers need to think through the ways in which brand risk is intelligently evaluated. The current vogue for 'brand disruption' for example carries with it enormous implicit risk. Too often in advertising creativity, brand opportunism and inappropriate risk-taking - 'brand wizzdom' as opposed to brand wisdom - has the effect of undermining and devaluing brands over time. Equally, the risk of stagnation or mediocre creative work needs to be understood.
While assessing risk is complicated and difficult to do when value is often added through creativity and imagination, it would happen if we were managing technology or physical assets.
While corporate governance is based on transparency in the decision-making process, brand governance should be based on transparency of the information.
Brand decision makers should have access to information systems that enable effective and intelligent brand decision-making. Importantly, these systems should be designed to ensure that holistic information is provided to brand decision makers.
Coke's now classic 'New Coke' mistake was largely a result of relying on one-dimensional quantitative data rather than having holistic understanding of the emotional relationship and the role that Coke played in its consumers' lives. This can be avoided by ensuring that information systems are holistic in their design and include both quantitative and qualitative data.
Today, brands operate in a world that places an increasing premium on ethical compliance and good citizenship.
In a global society where brand indiscretions can quickly travel, brand managers need to be exceptionally rigorous about this, as unethical or irresponsible brand management can quickly and permanently destroy value. This is particularly true in an environment where left-wing activists, who decry branding as a social manipulation, stand ready to pounce on companies by targeting brand indiscretions.
Developing an ethical framework for decision-making and ensuring a high standard of ethical awareness is a key component of brand governance.
Clearly, many of these issues would not be new to most marketing directors. What is new perhaps is a way of seeing the brand marketing system as one that needs to be conceptualized at three levels: an operational level, a strategic level and a governance level.
A well designed marketing system should be healthy at all three levels and that without coherent brand governance, the system is potentially flawed and the brand assets entrusted to this system are potentially at risk.
So how can managers identify whether they have healthy brand governance? As a potential first step to developing brand governance as a useful concept, we at Ogilvy South Africa have used the broad governance principles identified earlier as a checklist which can be employed to identify potential problem areas.
Clearly, our framework needs to be refined and developed, and the management practices needed to remedy potential problems should be explored and agreed.
However, given the growing importance of brands as financial assets and the potential for value destruction, it is important to go beyond operational and strategic brand management and to consider the system of brand management itself, and the way in which we interact and make decisions in brand management. Hopefully, the concept of brand governance will help marketers think differently about the assets which they steward.
