Sophie's Choice

What a wonderful thing the Internet is. Yesterday, a very interesting guy called Jack Simms called me to discuss whether there was a good answer to give accountants who want to know how a brand can be valued. The galling thing, Jack felt, is that if a company buys a brand, it can be shown on their books, but if a company creates a brand, it can’t. I’ve been pondering what Jack discussed and have concluded that neither possible or even necessary to find an answer to that question, for two reasons: 1. Brands are complex and their value cannot be expressed in simplistic terms. Any valuation a buyer does is done in the context of their own circumstances and expectations from the brand they are contemplating acquiring, 2. No one, except the most naïve today, believes that the financial reports of a company reflect anything but a fleeting financial snapshot of a company. A company contemplating acquiring a brand is usually doing so in response to an internal need. No such company ever believes that it will just acquire a particular brand and then leave it to function the way it has historically done. They will want to enhance it because of some opportunities for growth that they believe they are uniquely positioned to tap. Thus two companies wanting to acquire a brand will never value it at the same level as their criteria are bound to be influenced by their own experiences and perceptions of their own abilities to enhance the value of what they buy. His point was valid, that if you buy a brand you can place it on your annual report with a tangible monetary figure attached to it, but that is also just at that point in time. You can’t, next year, change that value to reflect what you believe that acquired brand is worth after you’ve worked on it for a year, can you? The concept of management accounting came into existence in response to these very limitations that financial reports have in reflecting the true state of a company. Using this tool, one can hope to, if not in precise numbers, look at the potential a company has, and identify its strengths and weaknesses. Forget folks like us who are into brands, no financial analyst in the world evaluates companies purely on numbers, do they? They consider general market trends, industry trends and whole host of other phenomena that have a bearing on the future of a company and these don’t lend themselves to piecemeal quantification either. In my opinion the effort to find a flat, universal method of valuing a brand is quite futile. As futile as it would have been to ask Sophie to quantitatively justify the horrible “choice” she was called upon to make. Don’t you agree? Brands sadly get discussed mainly in the marketing sense, but the values that drive a brand are internally critical to a company as it helps them define who they are and what behaviour they want people to expect from them. Today, my partner Sanjiv and I discussed a crisis that we’ve been confronted with. We took a decision that requires us to take a financial hit but allows us to still feel good because it is in consonance with our beliefs and values. Thank heavens we’ve taken the time to articulate a set of values for Norquest. How would you a put a price on that?