Looking after brand intangibles

By IRENE CHAPPLE marketing writer

This time last year, the name Andersen had the might of a global brand, resonant with the gravitas of a big five accounting firm.

Today its identity is virtually worthless, culled from markets around the world as the Enron scandal infected its reputation.

But despite the breathtaking speed of the Andersen brand's implosion, billions of dollars in intangible brand values continue to shore up corporate balance sheets.

Andersen once fought vigorously for tight control over the brand when its consulting arm, Accenture, began in 2000. The two parties squabbled over use of the brand name and an international arbitrator eventually ruled in Andersen's favour.

Accenture - formerly known as Andersen Consulting - was forced to relinquish the name and forfeit US$1.2 billion nte in past payments to the accounting firm. Accenture then spent US$13 million in a campaign to popularise its new name.

Now Andersen's US offices cannot seem to escape the stink of Enron's bankruptcy, and clogging any rebirth is a fight against criminal indictment after the auditors admitted shredding financial documents.

Saatchi & Saatchi managing director Ian Christie, says the Andersen case simply shows a brand that was abused.

"Brands rise and fall on their value. A brand is something you have to feed and nurture, so it stands for the things you want it to stand for. [Companies] mismanage a brand at their peril."

Andersen affiliates are leaping from the association, including in New Zealand where the local offices have been subsumed into Ernst & Young.

The worldwide fire sales have inevitably given buyers cheap deals. In New Zealand, it's understood no money changed hands during Ernst & Young's merger with Andersen. The deal was simply an extension of the existing partnership arrangement.

Even so, a source close to the negotiations agrees "it gives people a chance to buy in, and potentially lowers the value of the brand. It's good for the purchaser."

The New Zealand situation, he adds, "was very unfair in the sense they were affected by [US] business. It was bloody tough."

Valuing professional services under a brand umbrella is notoriously difficult.

PricewaterhouseCoopers partner Steve Smith points out the value is almost never quantified, because it is largely an investment of expertise by the partners.

The value would become a market-driven price if a firm were listed, depending on profit performance and expected future performance. In a private sale, says Smith, goodwill attached would be a "substantial" chunk of the purchase price, again depending on performance expectations.

Smith describes the local situation as Andersen partners effectively closing the doors on Andersen and transferring their personal goodwill to Ernst and Young.

How to value intangible assets, such as brands, has been a problem for some time.

Just over two years ago, New Zealand's Institute of Chartered Accountants considered an accounting standard exposure draft, dubbed ED-87.

If implemented, the draft would not allow internally generated brands to be recorded on the balance sheets as intangible assets after 20 years. For companies such as Lion Nathan this would have meant a writedown of billions in brand value, which at the time stood at $2.3 billion.

Lion Nathan's brands are valued annually by global company Interbrand, and at present have a worth of $2.4 billion. A hefty sum indeed - after all, when talking about consumer goods, the value of the brand lies largely in a product's public image.

The draft is in limbo, on the "research agenda" for the International Accounting Standards Board, says the New Zealand institute's April Mackenzie.

When an international standard is decided on, New Zealand will follow, says Mackenzie.

But locally, the issue "partially got put in the too-hard basket. It's a difficult and complex area, and because we have a small economy there are issues around trying to find reliable numbers."

Problems were particularly rife when trying to value assets which were not frequently traded.

Renzo Scacco, associate director of Interbrand, baulks when asked about valuing professional services.

"It's a devilish job to put a finger on that," he says. "You need to sit down and say, 'what's the top-line revenue, what's driving it' ... it's really an area where the intangibles aren't just the brand name.

"It's self-expertise, knowledge, techniques and skills, and do you put a value on that?"

The easiest test, he says, is "if you change the name, ask what would happen to the business, what the implications would be."

Consumables give a more solid calculation.

Says Scacco: "You really just need to understand the value in the market, its financial performance, the reasonableness of the forecast and the strength of a brand. The simple maxim is, if you have a strong brand the forecast will materialise."

Advertising is a large factor in the mix. For Lion Nathan, Saatchi & Saatchi campaigns for products such as Steinlager and Lion Red put solid brand value on the products.

The epic Steinlager ads promoted "inner confidence", says Saatchi & Saatchi's Christie, and Lion Red's "Chinnies" campaign appealed to young, male consumers.

But for the US offices of Andersen, the mud that stuck after Enron's collapse was seen as too thick to peel off with an advertising campaign.

Not even a solid public relations campaign - say, in the style of Southern Cross Healthcare's apologetic and reassuring campaign here after the claims backlogs - could save the US offices from public disdain.