Ipsos Corporate Reputation

The ins-and-outs of equity flow

Equity flow is an important way to leverage value from a strong reputation.
It can be used to build business when market opportunities arise, or as a defence when reputation turbulence hits.
Above all, the management of equity flow should be seen as a strategic process that brings together people across the marketing, communications and leadership spectrum.

We live in a world where corporate behaviour has never been under greater scrutiny and where judgement of a company can be transmitted around the world at a touch of a button. This reality presents both a threat and an opportunity from a corporate perspective.

Companies that are seen to do the right thing and imbue their corporate brand with positive equity can harness that very same equity to endorse the products they deliver. Indeed, equity flow can work both ways and a corporate brand can also receive equity from its product brands as long as they are meeting or exceeding customer needs.

Equity flow is therefore the extent to which stakeholders understand and value the connection between the corporate brand and subsidiary or product brands.

While nearly all of our Reputation Council members (80%) find equity flow to be important, the reasons for this importance are nearly as varied as the number of companies represented in the Council.

However, a careful analysis of the responses points to three main concepts when it comes to equity flow:

 

The Golden Thread – equity that entwines itself between the corporate and product brands. This equity can flow up from the product brands as well as flowing down from the corporate brand. Reputation Council members who espouse this concept tend to come from companies with a very strong and visible corporate mission. Achieving a golden thread requires strong alignment between corporate brand communications and product marketing.

"Given the interdependence, I think that you want to manage them all in the right way. There should be a golden thread that runs through them and that reflects your values, even if they serve different parts of the market with slightly different propositions or price points."
"WE’RE A BRAND THAT HAS A LOT OF BRANDS. OUR PURPOSE IS TO CONTRIBUTE TO HEALTHIER LIFESTYLES, TO A BETTER FUTURE. ALL OF OUR BRANDS NEED TO POINT TO THIS BESIDES BEING DELICIOUS, CLOSE TO OUR CONSUMER, MAINTAIN A FUNCTIONAL GOAL… THEY NEED TO BE COMPLETELY ALIGNED TO THE ‘MEGA’ BRAND."

Seal of Approval – the corporate brand acts as a quality mark for sub-brands or sub-categories. This concept is similar to the golden thread, but is specifically focused on leveraging equity around the key themes of quality and reliability. The seal of approval is particularly useful when expanding into new categories or geographies. In fact, some companies that may not display their corporate brand prominently in their home markets will place the corporate brand front and centre on products in developing markets, in order to draw upon the reputation for quality and reliability that is associated with products from developed markets.

"IN A CATEGORY LIKE OURS, WHERE TRUST IS VERY IMPORTANT, WE WANT TO BE IN A SITUATION OF PEOPLE GOING TO OUR PRODUCT BECAUSE IT CAN BE TRUSTED. YOU SHOULD NOT HAVE TO START FROM SCRATCH, BUILD UP THAT TRUST FROM ZERO EACH TIME. HAVING THE HALO OF THE BRAND IS VERY IMPORTANT."

Transparency Agenda – in last year’s Reputation Council report, members were urging their organisations to be transparent in order to meet the information needs of stakeholders in the interest of promoting open and honest communications. This transparency agenda unfolds when discussing equity flow as well. Stakeholders want to know more about the companies they interact with and part of this understanding is knowing all of the brands and categories that are present.

"WITH THE WORLD BECOMING A GLOBAL VILLAGE, CONSUMERS — AS NEVER BEFORE — CARE ABOUT THE CORPORATION BEHIND THE PRODUCT.

THEY DO NOT SEPARATE THEIR OPINIONS ABOUT THE COMPANY FROM THEIR OPINIONS OF THAT COMPANY’S PRODUCTS OR SERVICES.

THIS BLENDING OF CORPORATE AND PRODUCT/SERVICE OPINIONS IS DUE TO INCREASING CORPORATE TRANSPARENCY, WHICH GIVES STAKEHOLDERS A DEEPER AND CLEARER VIEW INTO A CORPORATION’S ACTUAL BEHAVIOUR AND ACTUAL PERFORMANCE."
"EXPECTATIONS OF TRANSPARENCY FOR ANY BRAND OR SERVICE PEOPLE BUY IS INCREASING. WE ARE EXPERIENCING A GREATER LEVEL OF EXPECTATIONS WITH REGARD TO HOW PRODUCTS ARE MADE, INGREDIENTS AND VALUES OF THE CORPORATE PARENT."

Other applications of equity flow – entering new markets can be challenging for companies on a number of levels, and establishing equity flow can ease entry among both regulators and consumers. Many companies who do not prominently display their corporate brand on product brands within their home market may do so in new/developing markets in order to provide a seal of approval to their product brands. Knowing that a global company stands behind a brand gives regulators and consumers the confidence that products are of high quality.

"WE KNOW THAT THERE IS DEFINITE COMMERCIAL BENEFIT FROM OUR REPUTATION, PARTICULARLY IN EMERGING MARKETS… THAT THEN FEEDS INTO BUYING SPECIFIC CONSUMER PRODUCTS."

Council members are divided on the effects of equity flow in crisis management situations. Some members worry that strong equity flow could have an adverse impact during a crisis, as brands that may have escaped negativity could be drawn in or contaminated. However, other members argue that a strong corporate brand can help a product brand recover from a crisis more quickly and that a broader awareness of a company’s categories helps to insulate the company as a whole from isolated incidents.

"WHEN THERE ARE INCIDENTS THAT OCCUR IN ONE PART OF THE BUSINESS OR ANOTHER, THEN OF COURSE YOU WISH THAT NOBODY KNEW, BUT YOU CAN’T HAVE YOUR CAKE AND EAT IT TOO. AGAIN THE UPSIDE WITH STAKEHOLDERS IS BETTER THAN THE DOWNSIDE."
"EVERY TIME THIS ASSOCIATION BETWEEN THE CORPORATE BRAND AND THE SUBSIDIARY BRANDS IS STRONG, IT IS IMPORTANT TO STRESS IT. INDEED, IN OUR CASE THIS ASSOCIATION HAS HELPED SUPPORT LOCAL BRANDS DURING THE CRISIS PERIOD. THE GOOD REPUTATION OF THE HOLDING COMPANY SUPPORTS AND INCREASES THE REPUTATION OF ALL ITS BRANDS."

For many companies, one of the roles of the corporate brand is to carry the company’s sustainability message. The sustainability message has more impact, though, if there is strong equity flow – otherwise the benefit for the product brands is minimal.

"IT IS ESSENTIAL THAT WE ALWAYS WORK ACCORDING TO OUR BRAND VALUES. EVERYTHING IS ABOUT CREDIBILITY AND TRUST. FOR EXAMPLE, SUSTAINABILITY IS A BRAND VALUE BENEFITING OUR CORPORATE BRAND. THEN WE NEED TO WORK ACCORDING TO THIS WHEN WE SET UP OUR PRODUCTS. THE PRODUCTS HAVE A POSITIVE IMPACT ON THE CORPORATE BRAND AND VICE VERSA."

Methodology: 127 interviews conducted with Reputation Council members between April and August 2017.

Final thoughts

Equity flow is important across companies and industries. The way that importance is gauged varies by company and industry. The concepts we have identified should provide corporate communicators with a way to understand their own equity situation, helping facilitate discussions with internal stakeholders. The benefits we have identified can provide communicators with avenues for improving or directing their equity flow, leading to improved brand and business performance.

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It’s the environment, stupid!

ENVIRONMENTAL CONCERNS ARE NO LONGER JUST PRESSING ETHICAL ISSUES, BUT QUESTIONS OF FINANCIAL PRUDENCE. OVER HALF OF BRITISH CONSUMERS FEEL WE ARE EXPERIENCING A CLIMATE CRISIS, AND OVER ONE THIRD SAY THEY WOULD SWITCH OR BOYCOTT A FINANCIAL ORGANISATION IF ITS INVESTMENTS HAVE A DETRIMENTAL ENVIRONMENTAL IMPACT. DESPITE BIG CONCERNS AROUND COVID-19, THE ENVIRONMENT REMAINS A PRIORITY FOR THE PUBLIC, AND BUSINESSES WILL BE EXPECTED TO CONTINUE THE TRANSITION TO A SUSTAINABLE ECONOMY IN THE POST-CRISIS PERIOD.

Whilst it doesn’t roll off the tongue with as much zest, James Carville’s ‘the economy, stupid’ slogan is aptly modified for Larry Fink’s announcement earlier this year that BlackRock would base future investments with environmental sustainability as a central goal… ‘It’s the environment, stupid!’. If anyone could ‘wake up’ the market to the tipping point which has now been reached around the environment, it is the Chief Executive of the world’s largest asset management firm. “Awareness is rapidly changing” wrote Mr Fink in the company’s annual letter, “and I believe we are on the edge of a fundamental reshaping of finance”. This has been compounded more recently, with the announcement that the UK’s biggest pension fund, the government-backed National Employment Savings Trust (Nest), will begin divesting from fossil fuels, and BlackRock “launching a selection of ESG multi-asset ETFs, to provide investors with a cost-efficient, transparent and sustainable way to invest”.

Data from Ipsos’s 2020 Sustainable Business Monitor survey amongst the British public echoes these sentiments. With a majority of the public now feeling we are dealing with a climate crisis, it appears that cash may no longer be king in investments. Only 21% now claim to care more about financial returns on investments than on whether the financial provider is ethical in how it invests money. This is compared to 28% of the public who prioritise ethics over financial returns and 26% who feel they should be given equal footing. Even allowing for the possibility that consumers may not be quite so ethical when faced with this trade-off in reality, it is clear that there has been a change in the drivers of investment decision making.

Returns on investment or ethical considerations?
Views on Climate Change

The growing imperative for investors to prioritise companies with a good sustainability track record is brought into sharper focus when looking more closely at the attitudes of millennials. Findings from the Ipsos Sustainable Business Monitor show that 54% of 18-34 year olds would be concerned about investments in Oil and Gas, compared to 47% for the UK public overall. This isn’t limited to the UK either; sustainable investing interest among US millennial investors jumped from 84% in 2015 to 95% in 2019, according to Morgan Stanley’s Institute for Sustainable Investing.

Which sectors concern the public regarding investments?

So, what does this all mean? Unsurprisingly, that Fink is right.

Over one third of those asked said that investment in projects or companies that have a detrimental environmental impact would lead them to ‘switch from’, ‘stop using’, or ‘boycott’ a financial organisation. Indeed, sustainable investing is ranked alongside executive remuneration – an issue that has a long track record of being a strong driver of negative opinion for the finance sector.

Switching / Boycotting financial organisations

This sentiment is further reflected at a global level when looking at Ipsos data from the recent Earth Day 2020 report, highlighting that even when set against the crisis situation that COVID-19 has presented, concerns around the environment remain steadfast. Over 7 in 10 people around the world agree that climate change is as serious as the pandemic, whilst 65% agree that in the economic recovery from COVID-19, it’s important that government actions prioritise climate change.

Seriousness of climate change in comparison to COVID-19
Support for a 'green' economic recorvery from COVID-19

Recognising the growing commercial opportunity facing the sector, and the long-term risk of investing in environmentally unfriendly industries, Fink notes that “as a fiduciary, our responsibility is to help clients navigate this transition [the reallocation of capital]. Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors”.

But where does this leave industries which have been traditionally harmful to the environment, such as the oil and gas industry, for a long time the bedrock of investment portfolios and still an essential service despite growing environmental concern?

In light of BlackRock’s position, The Economist wrote: “[t]o cynics, all the climate-friendly noises amount to little in practice, since few people are ready to make carbon-cutting sacrifices that would force oil firms’ hands. But noises are sometimes followed by action. Should they be this time, the 2020s may be do-or-die for the oil industry”.

It isn’t a case of ‘adapt tomorrow or die’ for fossil fuel companies however, and Fink makes this clear, forecasting “the energy transition will still take decades”. Citing fairness and justice, “we cannot leave behind parts of society, or entire countries in developing markets, as we pursue the path to a low-carbon world”. The demand for energy will continue whilst technology works to bring cost-effective replacements to conventional fuel sources, but it is incumbent on the sector to aggressively pursue cleaner energy; not only from an ethical perspective, but also in order to remain an attractive investment. The same is also true for a number of other sectors which have for a long time been harmful to the environment, and must adapt with the new way of sustainable investing.

Companies from within the fossil fuel and investment sectors which are leading the transition to a more sustainable future are on the right path, reinforced by public support. This should not be derailed. Communicators in these sectors therefore have the opportunity to maintain messaging around this transition, but with fairness in mind, should also remain sensitive to the societies whose energy programs are not as developed as some of the leading world economies. The transition to sustainable investing will need a collective effort – innovation from industry, reallocation of risk, government support and sustained societal scrutiny, but in adopting Fink’s position, it should be worthwhile effort for investors, producers, and consumers, from both an environmental and a financial perspective.

Contact: Alex Russell - Email | LinkedIn

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