It’s Not Your Brother’s New Car That Threatens Your Family Business

Economic slowdowns stress the family business in unique ways. These challenging times test the family’s ability to distinguish between family and business issues. Failing this test may not only elevate tensions in the family, but may also hurt the business.

The family business is a unique vehicle for conducting business. It combines business and family models of organization. While successful businesses are based on some form of meritocracy, where the best rise to the top, successful family models all emphasize the value of nurturing and protecting the weakest family members. While successful businesses separate between the business and private lives and promote the concept of not bringing one’s personal problems into the workplace, the family business often has a kind of transparency, which blurs the line between these two worlds.

But recognizing that these two worlds, the family and the business environments, are and should remain separate is critical to the proper functioning of the family business. Just because you know the intimate details of your partner’s lifestyle doesn’t mean that these items should be placed on the corporate agenda.

How the business’ shareholders and managers spend their money have no impact on the performance of the business. And the financial needs or desires of its executives should not impact compensation and other remuneration decisions. If family members focus on the business needs and on the contributions of its managers and owners, they will enhance their abilities to guide the business through tough times.

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Deal Fees Under Fire Amid Mortgage Crisis: WSJ

          

Letter to The Wall Street Journal:

I found your article in The Wall Street Journal to be very interesting. However, while you touch upon many of the factors that fueled the lending excesses, I question your emphasis on the role that the fee structures in the lending and mortgage industries played. To be fair, you discuss both the fee structure in these industries and the subject of executive compensation, which I believe to be two distinct problems. I am only addressing the first. 

The core of my disagreement with your emphasis is that I believe the problems are systemic and you favor an approach which searches for the culprit and assigns blame. Unfortunately, most of the blame under your analysis will fall on the "little guy", the mortgage broker who "pushes" his product on the under informed borrower and walks away with a commission for a loan that is likely to be in default within months or years, at best.

The problem in the industry is that there are inadequate controls over the sales people selling the product, in this case money for mortgages, or securities that bundle mortgage obligations. This is aggravated by the fact that the credit decisions are either not properly made or the lending criteria are relaxed or ignored.  Except in the case of fraud, the "culprits" are really the lending institution executives who make lending policy and credit committees, not the sales people. Every business man knows that if he doesn't enforce limits on his sales people, either by way of minimum prices below which a product can't be sold, or explicit authorization which must be sought, it will only be a matter of time before his sales people put him into insolvency. Credit checks and controls conducted by typical businesses are never conducted by the sales force. In fact, the better and proactive your sales team, the more likely it is that management will have to be vigilant and on occasion reign them in. This is a healthy dynamic of a system with adequate checks and balances.

We have moved to a financial system that requires an endless supply of money, and a high level of liquidity to survive. You correctly note that mortgages used to be held primarily by the originating entity. With the birth of techniques for continuously re-cycling capital, greatly promoted by the Resolution Trust Company in the wake of the Savings and Loan crisis in the late 80's and early 90's, a lending institution which securitizes and sells off its loan portfolio, creates a virtually never ending supply of capital to make additional new loans. This liquidity means that money chases product and inevitably leads to a lowering of credit criteria until we find ourselves in a crisis. 

Two years ago, I had an employee in Virginia Beach who was a foreign national, employed on a temporary work visa. One day he proudly announced that he purchased a home and was able to walk away from the closing with $2,500 because he had obtained a mortgage that was $2,500 in excess of the cost of his home, including the mortgage costs and fees. I congratulated him and told him that he was witnessing  the end of the local housing boom. He is now in back in Israel, his house recently sold in a foreclosure sale for considerably less than his purchase price. His mortgage broker was a genius; his banker was the idiot. Unfortunately, you and I will bear the tab.

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Who's Sub Prime Crisis is it, Anyway?

As the recent coverage of the impact of the sub prime crisis on the financial community makes clear, there are two distinct sub-prime crisis surfacing in this country: one in the real estate, home ownership, market; the second in the financial community. One is affecting average American households, the second is affecting larger financial institutions which often placed huge speculative bets using shareholder money.  It is important not to confuse the two, particularly in the public debate that will inevitably frame the basis for government policies aimed at ameliorating this situation.

The homeowner sub-prime crisis is reflected in the acceleration of residential mortgage defaults, and, if not addressed,  will most likely become evident in the rise of personal bankruptcies and other indicia of personal hardship. Government policy in this area should be targeted to determine if, and to which constituency, interim relief measures, like freezes on adjustable mortgage interest rates, will help fix the problem. If it is determined that a class of homeowners is likely to be able to support their mortgages if existing, pre-adjustment, rates remain intact, then either voluntary action by the lenders, or government legislation to accomplish a temporary freeze in these rates would be desirable. 

The other sub-prime mortgage crisis is the mounting pile of losses being experienced by the financial community which results from ill conceived, highly speculative or little understood bets that these institutions placed on the performance of the residential mortgage sector. When considering whether remedial actions are warranted to bail out these institutions, we should not forget that on the road to placing these bets, these institutions racked up huge profits from the fees and other charges they received for arranging these bets. At a minimum these fees should be approximated and taken into account before anyone determines that these institutions deserve a publicly funded bailout. 

We would also do well to remember the financial community's pleas for public assistance the next time we, as a society, are asked to consider, welfare reform, assistance to public education, help for the indigent and other public assistance projects. 

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Consumer Goods: SchmidPriessler 2008 Forecast

Use caution in regards to growth of consumer goods turnover in 2008

Cost of energy, development at foreign exchange markets, exploding costs for health care, pension provisions, research and education, costs for fighting poverty, epidemics as well as terrorism, war and the consequences of war, rising costs for public service, securing and expanding infrastructures, fighting ecological destruction, development of new energies, protecting what is still whole in nature, fighting and lowering national debt – all of these problems are prevailing equally in countries of the First, Second and Third World and thus burden financial powers. People have to dedicate considerable financial resources to these problems and this is going to significantly affect consumption in the next year. Everywhere in the world even if there is a positive development of the global economy taking place. It’s not that consumption is going to collapse under these general burdens, but it is still going to change and we assume that it is going to change more and more sustained than many think during this time of a positive general mood. 

Wants and needs are going to get even more distinct outlines than has been the case in the past. Everything that can’t be clearly assigned is going to continue to disappear. 

Meaning, people are going to purchase more prudently. They are going to use their considerable knowledge during selection and purchase of products and services. 

Surely, there are needs that can be met, in regards to quality, with simple and modest products and services, especially through automated facilities. Price can be adequately low there. The consumer has long gotten used to buying packaged products from a carton or simple shelves. When it comes to satisfying needs, the advantageous price is an important sales tool. This is why discounters are going to be of even more significance in the near future. 

However, when this is about fulfilling wants, satisfying wishes, then people are always willing to spend more money. In economically tough times this may be even more so than in good times. But even for products and services which do not serve fulfillment of demand it is imperative that the relation of the value of the product to the price has to be evident. Far more critical than in the past, people are going to watch out for a comprehensible immaterial value of Premium and Luxury goods and services when fulfilling wants and satisfying wishes. Most of all this means brands dominating the premium and luxury business have to offer value. 

It is going to be problematic for those suppliers of products and services which are still present in the traditional and disused “center” of the market and without adequate substance and yet are offered as premium and luxury goods and brands.

The consumer goods markets are going to shrink. But not the exterior outlines on the upper and lower edges of the individual markets or industries, but from the center.

If your planning includes growth for 2008 and the coming years you should rely less on the past but rather align your plans for growth with the possibilities, your products and services offer in regards to a clear profile.

Money available for consumption is becoming more valuable globally and the offer has to be designed correspondingly. If you are aware of this and look around accordingly, you are going to realize quickly that considerably more has to be done then just economizing and lowering costs. In order to keep the offer valuable and if necessary create a more valuable offer one has to be willing to invest into the market.

 

What we should wish for in 2008

What we should especially wish for in 2008: Regaining professionalism. 

In general, there is plenty of knowledge. Dwindling professionalism of economic players costs the economy billions of Euros or dollars every year. The crisis in the money economy, unsatisfactory results in the automotive industry, the failure of many politicians, countless professional ‘blunders’ which can also happen to executive consultants, just to name a few ‘hot spots’, are attributable to dwindling professionalism. The deterioration of professionalism stems from a destruction of time gone wild. One gets increasingly the impression that he who has no time is good, important and in demand. One could almost think that people are trying to not have time, because they expect their prestige to increase and they would like to give the impression that without them nothing is happening. Recently, a German manager tried to justify his income amounting to millions by saying that, in general, he is working eighty (80) hours per week. Nobody called for his dismissal even though there is no more convincing evidence for inaptitude than a manager who is supposed to lead, working eighty hours per week. How sick is a society that does not feel that this is wrong, that does not feel it is running the risk of being lead by overstrained managers?

Professionalism has got something to do with maximum performance. In order to render a first class performance one has to have the ability to concentrate and bundle one’s energy to utilize one’s time at full capacity.

Those of us, who ask ahead of a conference why it is taking place and what the expected result is going to be, do have spare time. Only those of us who can express what is essential in only a few words, have time. He, who can live without an appointment book filled to the brim, has time. Only those of us, who can distinguish ability from inability and meaning from nonsense, do have spare time. 

To have spare time means to keep calm and to keep the distance. 

If we want to regain professionalism we need time to calmness and distance. And we have to fight a reckless fight against everything that robs us of time and calmness and against everything that curtails the distance and makes us feel cornered. If we want to regain professionalism, we need to eliminate the racket around us in order to get in touch with our inside, to listen to ourselves and to connect with our soul. 

True professionalism requires harmony of body and soul. The New Year is still young and fresh enough to wish for something from the beginning. Surely, not just ‘something’, but the most important thing that is going to make us successful: Professionalism. Today there is hardly anybody in the position to say he owns his own living space and that he is always able to keep the healthy necessary distance so his environment. In this respect we are all invited to decidedly advocate reclaiming professionalism. He who has the time and the calmness, who is able to keep the distance, does not have to search for new management techniques and rules because he is going to be able to put lots on the right track. For us executive consultants this means that we are going to be able to be more of a partner in dialogue for our clients, instead of gathering broken pieces.

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Artist Owned Art Galleries: Good For The Public, Bad For The Artist

This morning NPR ran a story on the proliferation of artist-owned galleries in New York. Unfortunately, this phenomenon has frequently coincided with the end of a booming economic cycle. As a collector and long-time observer of the art community, I am delighted to have more venues in which to get a glimpse of contemporary artists are creating. But as a person who also cares about the artists, I am worried that more artists may be hurt than helped by this phenomenon. Generally, it’s a bad idea for the artists.

Running an art gallery is not an extension of creating art. And although artists do, and should, take an active role in promoting their careers, running a gallery is a business, and a risky one at that. With art fetching well documented record prices and rents in cities like New York soaring,  the risks of opening a small art business today far outweigh the potential benefits.

Successful galleries do far more than display and sell art. When not on the selling floor, the successful gallerist is busy visiting artists’ studios, networking with collectors, with Museums, critics, scholars and with other gallerists. He is seeking exposure for “his” artists as well as to place their work in important exhibitions and collections. And some successful gallerists contribute to the scholarship that is a necessary ingredient of a healthy art market. They produce catalogues, curate shows and lend works to other exhibitions.

The successful gallerist is an arbiter of taste, an expert whose expertise is sought out by those who want to build top tier collections, by those who wish to purchase their first work, by curators and by critics. If the gallerist is successful at building his brand, he has the power and authority to influence trends in scholarship, not only in collecting.

Not to be overlooked, the successful gallerist is an accomplished businessman. He understands the need for adequately capitalizing the gallery business, for developing a suitable inventory, and for merchandizing his business. He maintains a consistent level of taste, interest and variety on the gallery walls and makes his gallery a destination, which will always be interesting for the public to visit. Lastly, he controls expenses, watches the payroll and pays the rent on time.

Surely there is room for a small number of artist galleries. AIR Gallery and other collective efforts have a long and distinguished history and have contributed to the art community and to the participating artists. But it makes me very nervous to think that young artists will increase the already significant investment they make by committing to a career in art but assuming the additional risks associated with running a small business in New York. 

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Danger: Tightening Your Belt in Lean Times Might Lead to Fatal Undernourishment.

The concept of “belt tightening” is integral to the vocabulary of economic bad times. Whether we call it a recession, a slow down or simply a hic cup, the press is rife with examples of belt tightening: consumers are tightening their belts and spending less, business are tightening their belts and reducing capital expenditures, cutting back on expansion plans or laying off employees. On the surface, it makes good sense. If you have less, spend less.

But for a brand driven business the impulse to tighten its belt to protect against economic adversity may be bad medicine. It very well might make the business more susceptible to the anticipated reduced economic activity; it might even cause the business to decline more precipitously than had it spent some money intelligently.

Roaring economic times disguise many strategic mistakes. We get sloppy when sales grow quarter after quarter, and we get cocky when virtually everything we do seems to result in increased sales. Frequently, we lose sight of the market that we originally targeted and inadvertently venture into new, less profitable, and more competitive markets. It’s a no brainer. Everything we do bears successful results.

But in less frothy times, consumers become more discerning. As less cash is available, consumers must make choices and whether they choose your brand depends on what they think of it.

It is precisely when these symptoms begin to surface that a brand driven business would do well to audit its brand strategy: to conduct market research to confirm its understanding of what associations its consumers make with the brand. What values do consumers associate with the brand: luxury, value, reliability, performance, comfort, rarity, exclusivity, and creativity? And how successful is the business in delivering on its promise to its consumers? Has the brand earned the consumer’s trust?

While these kinds of studies cost money, the information they provide is invaluable. It is critical to a brand-driven business’ ability to successfully navigate a difficult economic environment. While the competition’s knee jerk reaction to slash costs might appear to reduce the business’ vulnerability to reduced business activity, this strategy has the perverse effect of locking the business’ into what might be a failed strategy, a strategy conceived in flush times with little or no attention to detail. Drastic cost reductions reduce flexibility. When coupled with a lack of information about the brand’s current relationship with its consumers, these reductions raise the ante, and in effect commit the  business to an all or nothing bet that its failed strategy will help it succeed in tough times.

I’m not recommending overspending or spending indiscriminately as bad times approach. Nero fiddling as Rome burned is a strong enough image to indicate the foolishness of this approach. But, I do advocate adapting to changing economic facts on the basis of current market data and re-examining where the business actually stands in relation to its brand equities. In weakened economic times, spending a little money can save a lot more

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Starbucks Redux? Not If You Get a Wall Street Fix

 Joe Nocera’s New York Times article, written in the form of a memo to Starbucks Chairman, now CEO, and Founder, Howard Schultz is rich with skepticism as to whether Starbucks can be quickly turned around, coupled with advice on how to do it. Unfortunately, while advocating that Shultz revamp many of his strategic assumptions, Nocera incorrectly adopts many of the very same strategic assumptions that led to Starbucks’ demise.

Mr. Nocera makes the fundamental error of assuming that going back to the brand’s core equities means doing things the same way they were previously done. This is a wrong assumption. The smartest and best brands have always adapted their tactics precisely so they could maintain consistency and adhere to their core values! Recognizing shifts in consumer tastes, likes and dislikes is key to growing a business and in a brand driven business this means constantly adapting and sharpening the business’ tactics to maintain a consistent and proven set of core values. Changes in tactics can support maintaining a consistent message.

Chiding Mr. Shultz to  “com [e] to terms with the new competition”, Mr. Nocera assumes that a fight between Starbucks and McDonald’s is inevitable and should be joined.  I’m not sure that this is accurate or wise. The fact that the competition between Starbucks and McDonald’s is now being written about is already a measure of the deterioration of the Starbucks premium brand. Engaging in this battle elevates McDonald’s and will do little for Starbucks. Why would Starbucks or any premium player choose to compete against one of the very best and most successful mass marketers?  Rationally, a competitor would avoid that competition. I haven’t read about any battles looming between Ralph Lauren and Old Navy.

Mr. Nocera applauds Schultz’ determination to focus “laser-like, on the consumer”. The applause should be reserved, however, until we see what Starbucks learns from this focus. Focus, by itself will not lead to a fix.

The real task is to ask the right questions and look to the consumer (and the market) for the answers that imply a strategy. The core mission is to deliver a premium coffee in a premium café environment. The questions are: What does today’s premium coffee drinker really want? What ambience should the stores have to attract and retain today’s consumer, who is likely to be better traveled and exposed to a wider variety of premium coffees than the Seattle consumer who initially supported the business? What does intimacy mean in this age of wi-fi, where the backdrop sounds of keyboards clicking has replaced the woosh of paging through newspapers and magazines?

Ultimately, the answers will come from market analysis, which poses thoughtful questions about the consumer and the market. I don’t know what this consumer would prefer, but the way to find out is through careful market analysis, not shooting from the hip.

Lastly, Mr. Nocera also rushes to conclude that Starbucks “insane growth” is a principal cause of its problems, that it needs to “drastically improve the food” and that the “stores should be clean and bright again”. Who says? If Shultz is to focus on the consumer, the focus should be on today’s consumer, not the consumer targeted when the business was started in Seattle.

And is Starbucks’ insane growth truly the enemy of intimacy in particular stores. Again, I’m not sure. Why should this be true? If you create an intimate “coffee café” environment in two, 3,000 square foot, stores, why can’t you replicate that environment in 1,000 stores? You can, so long as you don’t grow the individual stores.

Although the financial markets are looking for a quick fix for Starbucks, I suspect this is not in the cards. It took many years of neglect to bring the brand down to its present level. Maybe we should give it a couple of years to regain its stature.

 

 

 

 

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Is "Hillary" the Clinton Brand in 08 or Is It "Hillary & Bill"

Ambiguity has its place in life but it can be the kiss of death for a brand. This morning the Hillary camp sent Bill to speak on Al Sharpton’s radio show. His mission: to explain what he meant when he characterized Barrack Obama’s claim that he has had a consistent anti-Iraq-war position as a “fairytale”. Bill’s explanation: I stand by what I said and I said what I said.

Once again, Hillary seems to call on her husband to patch up the “nasty” problems generated by her campaign. For a person who is making huge efforts to illustrate that she is her own person, who is asking the electorate to try to get to know her, she is making the task of discovering the true Hillary very difficult.

The Hillary political strategists could learn a lesson from prevailing theories of brand strategy. The most important tenet of brand building is consistency of message. If you want people to buy your product, you must tell them clearly what it is your selling.

It’s for the Hillary strategists to decide whether the message is “elect Hillary and you get Hillary” or whether they prefer the two for one approach. But once this determination is made, they should rigorously stick to this message, not only in the campaign’s rhetoric but also in its actions.

If Bill is continuously called upon when the going gets tough, why should we believe that it would be Hillary who deals with the country’s problems, if elected

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Retailers Limit Purchasers...Give Me a Break!

Today’s New York Times ran a story that luxury retailers are limiting purchases of designer handbags to three per customer in an effort to reduce gray market traffic in these bags. Simply put, gray market activity is the buying and selling of authentic trademarked goods through illegitimate channels of commerce or in markets other than those into which the goods were initially sold. In this case, the resale of these legitimate bags in Europe and Asia by sellers who purchased them in the US.

Appearing on the same day as the financial press reports weaker than expected December retail sales, and the consensus is building that we are in a recession, this selling tactic reveals a lame attempt by certain luxury brands, and their retailers, to create “exclusivity” and “scarceness” in the market, where these goods are plentiful. Have they concluded that it's cheaper to build brand equity with marketing ploys rather than to follow through on their core promise to the consumer that these luxury branded goods are truly in limited supply? Perhaps in the short run this might work, but long term this will be costly to the brand.

Not that this artificial limitation of sales is likely to be effective. Does anyone really think that the Saks or Neiman Marcus in NYC is likely to coordinate with their sister store in White Plains or Bal Harbor to prevent a willing customer from buying more than the permitted number of bags? And, has no one ever asked a friend to purchase something for her if she is really desperate to have it?

Manufacturers have always been ambivalent towards gray market activity. While distributors complain that goods flooding their market from neighboring markets is damaging to their business, in the case of gray market activity, all goods are authentic and come from the same source (branded manufacturer). All of these sales, legitimate and gray market contribute equally to the brand’s bottom line. Only very few, long term and serious brands (think Hermes, Ferrari), have ever genuinely tried to combat gray market activity.

My guess is that this tactic of articulating policies to limit purchases, was conceived by the marketing gurus and are a desperate attempt by the marketers to create the illusion of exclusivity for products which are mass produced and widely available. It’s like the art dealer who tries to create a buzz by hiring five limos to park outside his opening but the clientele are no where to be found inside. In the long run, it’s far better to limit production or to deliver to a market only those quantities of products that are projected to meet the demand in that market. Building a brand is long term and and intensive and the rewards are likely to be enduring as well.

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O Starbucks: Where Art Thou?

I stopped into a McDonald's this morning and couldn't help thinking about their announced coffee assault on Starbucks and the Starbucks' senior management shakeup that this has brought about. It's truly amazing to think that Starbucks now plays in the McDonald's arena. My colleagues at SchmidPreissler noticed this phenomenon in the Spring of 2007; regrettably, for Starbucks, they were right (Please read link at right of page: "A Part of Starbucks Luster Disappeared...."). Starbucks diluted its brand equity and its coffee is tasting rather weak.

More than any financial statistics, or quarter to quarter comparisons, the fact that Starbucks openly admits to any reaction to the McDonald's initiative is a powerful indicator of how much damage the brand has sustained. There is hardly any similarity between these two giants of retail food distribution: the decor evokes a radically different ambiance, the service (if you can call McDonald's treatment, "service"), the product range and presentation. It is obvious that when the initial strategies were created, all of these were targeted to different audiences. Yet they are now poised for a head to head battle to capture the coffee drinking public. The setting is akin to Bentley reshuffling its management to get ready for a fight with Kia's launch of an economy hatch back!

I'm not suggesting that Starbucks shouldn't re-examine its tactics and try to regain its niche. Surely it should. But how did we get here?

When a company enters the public company arena, it takes on an additional set of challenges, not present in the private company sector. Surely, there are many financial benefits. But in the global economy of today, public companies are expected to continuously grow, to expand and to increase sales and profits; they are expected to protect their share price, not only their market share. 

Not infrequently, the tension between doing what's good for business and pleasing the investment community, limits the company's flexibility to respond to market conditions. How does a company stay true to its original vision. to its brand equities, when it is pressured to endlessly open store after store, increase its product assortment, emphasize uniformity and consistency, and do away with some of its less economic attributes to illustrate that it is vigilant in protecting its bottom line. For Starbucks, for example, this meant losing the aroma of freshly ground beans and moving towards pre-ground coffee delivered in pristine vacuum packed containers. How do you explain to Wall Street that "smell sells"? How do you explain to Wall Street that Brand Equity drives real value?

It will be interesting to watch Mr. Schultz as he tries to recapture the Starbucks of his dreams and resuscitate it in the multi-national, commoditized, body that it has become. 

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The Brand is the Message: What Hillary and Starbucks Have in Common

Today’s Wall Street Journal ran a story (reproduced in prior post) chronicling the story of legendary Starbucks founder and Chairman who is re-assuming the office of CEO of Starbucks to return the company to its origins; and Hillary Clinton confessed to her supporters that New Hampshire voters have taught her to listen again and “find her voice”.  Asking “what went wrong”, the Wall Street Journal concludes: “The details vary but, in each case, companies with longstanding records of success are acting as though their trusty playbooks suddenly have vanished.” Both Hillary and Starbucks have panicked and have resorted to shotgun tactics of “try anything and everything” to reach their market.

The real problem is not their playbook or tactics; the problem is that they have ignored, or forgotten, their brand equity: their core message. They have abandoned the message which enabled them to differentiate themselves from their competition and encouraged their audience to trust their message.

At its inception, Starbucks dedicated itself to emulating the European coffee house experience and to bring that experience, service, ambience, smells and coffee to its American consumer. Coffee should not only be of luxury quality but the experience of drinking it should be relaxed, reflective and indulgent.

But the pressures of being a public company and the quarter over quarter growth objectives, which this implied, led Starbucks to embark upon a program of international expansion and diversification of product and services, that took the company further and further away from its core. You can’t deliver the European coffeehouse experience to Europeans; you must Americanize it. Starbucks was no longer able to fulfill its promise of a recognizable coffeehouse experience to its loyal consumers and its consumers reacted in the same way anyone would react to a broken promise: they lost confidence and their loyalty diminished.

Similarly, Hillary has not consistently kept to her promise of being a bright, liberal, independent and accomplished woman in politics; instead, she has adopted the “vote for one of us and you get two Clintons” message, and increasingly turned to her husband, Bill, to bail her out when the going gets tough. We vote for a political candidate because they stand for something we admire, or to which we aspire. If we are not sure what they stand for, we are less inclined to support them. If as a loyal supporter, you were invigorated by the opportunity to vote for a talented and independent woman for public office, you became confused, if not disillusioned, by the prospect of also (re)-electing Bill hiding under his wife’s skirt.

While it might seem a bit crass to introduce brand strategy lessons into the world of  politics, I think the message is clear: in both arenas, the goal is to develop a relationship of trust with your audience; it’s to develop a clear, consistent message which reflects what you stand for and differentiates you from the field of competitors. Everything you do, your statements or speeches, your campaign tactics or the manner in which you sell your goods, your political team or your executive team must be consistent with your message. When you relinquish this clarity of message and behave inconsistently, you lose your audience and become one of a large group of competitors.

 

 

 

 

 

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As Economy Slows, Reputation Takes On Added Meaning

From The Wall Street Journal, January 9, 2008

By: George Anders

This article provided the stimulus for my post of even date.

As the nation's economy cools, some well-known companies are stumbling in painful ways. Starbucks is switching chief executives and struggling to reconnect with customers. Circuit City Stores is trying to right itself amid skidding sales and a more than 70% drop in its stock price last year. And the pharmaceutical industry seems to have lost its ability to develop meaningful new drugs.

What's gone wrong? The details vary but, in each case, companies with longstanding records of success are acting as though their trusty playbooks suddenly have vanished.

Rushing to the scene are lots of experts with advice about sustaining or repairing a corporate reputation in tough times. Their tips may seem obvious, or even preachy in boom times. But when the economy stalls, nervous bosses are more eager for help. Besides, this is too alluring an area for management consultants and public-relations specialists to ignore. Reputation consulting offers plenty of face time with CEOs, as opposed to less glamorous work counseling operating units.

Among the advisers now in demand is Reputation Institute, founded by Charles Fombrun, a former management professor at New York University. The firm's active client list has doubled in the past year to 100 companies. It has offices on four continents and 60 employees, up from 37 a year earlier.

"Mending reputations can't be done overnight," says Kasper Nielsen, Reputation Institute's managing partner. He takes companies through a seven-step analysis of what's causing their reputation to suffer, followed by a close look at which constituencies -- employees, customers or investors -- are affected and what they are seeking.

Then it's time for the hard work of figuring out what aspects of company conduct are helpful and what needs to be fixed. In many cases, Mr. Nielsen advises turning to outsiders -- such as environmental groups or corporate-governance scholars -- to validate progress if a company's own assessments have lost credibility.

In extreme cases, Mr. Nielsen says, a company's hopes of recovery may depend on ousting the top executives who brought on the problems, so that new leaders can make a fresh start.

"A lot of companies care about reputation only after a crisis hits," Mr. Nielsen says. "Then they want to know, can you fix things? They don't integrate reputation into their everyday processes. That's dangerous. You have to do a lot of things right to build up a reputation platform."

At Tyco International, Edward Breen inherited a corporate reputation in tatters when he became CEO in mid-2002. The company's previous chief, Dennis Kozlowski, had been ousted amid fraud allegations. Investors were nervous about Tyco's heavy debt load. Employees told Mr. Breen that the company's standing had sunk so low that they were too ashamed to wear Tyco logo shirts to their children's soccer games on the weekend.

It took about a year for a true recovery to take hold, Mr. Breen recalls. "Employee morale was my single biggest concern, aside from our liquidity issues," he recalls. "I was especially worried about our 30,000 front-line salespeople. That's a very tough job if you're embarrassed about your company. If they seized up, we'd be in deep trouble."

To address morale, Mr. Breen says, he visited dozens of Tyco facilities around the world and briefed employees about the company's new management, new governance structures, new code of ethics and its progress in debt refinancing. He made sure question time was at least as long as his prepared remarks, so that employees could feel personally engaged with the new boss.

Mr. Breen also said he avoided the temptation to promise a rapid rebound. "People saw how fast our reputation went down, and they hoped we could rise back as quickly," he said. "But you can't. It's a slower process, and in some ways, it's never-ending. This is a marathon, not a sprint."

An intriguing test of reputation maintenance is playing out these days at American Airlines, which is negotiating a new contract with its pilots. The carrier, a unit of AMR Corp., won major concessions from its pilots in 2003, when the airline industry was in bad shape. The pilots now are pressing for catch-up pay increases of as much as 60%, contending that management is getting rich as the industry revives, and that employees also should prosper.

American's pilots last year elected a hard-line new president, Lloyd Hill, who says his membership is "frustrated with management." Both sides say contract talks could drag on for more than a year.

Whether bargaining-table friction will hurt American's appeal to customers is anyone's guess. Pilots say they fear the airline's reputation could suffer if management snubs them. American spokeswoman Tami McLallen says she hopes such snarls don't arise. For her optimistic view to come true, American will need to persuade its pilots that burnishing the carrier's reputation is their best choice, too.

"Reputation is invisible, but it's an enormously powerful force," says Alan Towers, a New York adviser to companies concerned about reputation issues. He encourages CEOs themselves to assume the role of chief reputation officer.

A different approach comes from Richard Edelman, CEO of the Edelman public-relations firm in New York. In a recent public survey, his firm found that companies fared best when CEOs blended traditional high-level communications with peer-to-peer efforts, in which passionate customers and employees helped to tend to the company's image.

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The Man with 800 Warhols: Is This a Club Worth Joining?

Kelly Crow’s very well reported article in the January 4^th edition of The Wall Street Journal should be a wake up call for those racing to acquire their Warhol at any price and to those who take delight in the few they own. Why enter a market which is dominated by one goliath of a player who is on record as having virtually unlimited buying power and has stated his desire to own the best works without regard to price? The simple answer is it makes no sense at all.

The Mugrabi family has been collecting the artist’s work for more than 20 years. And they avowedly bring to the art market an attitude of unabashed commercialism, not one of connoisseurship. Often quoted in art market and Warhol-related articles, the family and its representatives speak about Warhol’s works in the language of commodity traders, not traditional art collectors.

So, what does the Mugrabi domination of the Warhol market mean to the average collector. I think it means, you better love what you buy, and buy it only because you love it. In the business world, one can’t make reasoned economic judgments when competing with a dominant and aggressive monopoly, and the art market is no different. There is little reason to believe that, over the long term, you will sell your dearly bought works at a significant profit.

One might reasonably assume that the Mugrabi’s already own a very significant percentage of the best quality Warhol works and that they will aggressively pursue those that come to market. This is likely to mean that better works will only be available at premium prices, prices which may be justified only when the buyer can amortize the excess of cost over value, over a large inventory of works by the same artist.

It takes a lot of chutzpah, or considerable naiveté, to knowingly compete in a rigged market. When Mr. Mugrabi sits front and center at an auction and challenges other bidders to bid against him for works he wants, he is clearly sending a message. And those not physically present in the auction room can now benefit by reading the Mugrabi message in Ms. Crow’s article.

My best advice to those who think they need a Warhol in their collection? Buy the one you like and then spend a bit of time studying the work of other artists and find someone whose works move you. The trophy for Warhol Collector of the Decade has been awarded and there’s no fun in coming in a distant second. The second half of the 20th century produced at least a couple of other artists arguably of Warhol’s talent and stature.  Find them and enjoy your collecting!

 

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Buoyant Art Market Draws International Buyers: From the Wall Street Journal YEAR-END REVIEW OF MARKETS & FINANCE

From The Wall Street Journal,

January 2, 2008

Buoyant Art Market Draws International Buyers

Asian Works Grab

Most of the Buzz;

A Big Russian Gift

By KELLY CROW

January 2, 2008; Page R19

The art market had another bumper year in 2007, as buyers from Asia, Europe and the U.S. chased the world's priciest works and mostly ignored the turmoil in the financial and housing markets.

Sotheby's said it sold about $5 billion of fine and decorative art last year, up 39% from 2006. The 2007 total included $1.3 billion in contemporary art, more than double the year before; $1.1 billion of Impressionist and modern art, up 24%; and $281.8 million in jewelry, up 44%.

 Christie's International PLC sold about $6 billion in fine and decorative art last year, up 30% from $4.6 billion in 2006. Closely held Christie's said it will release full sales figures later this month.

In November, Sotheby's set an auction record for a contemporary artwork when it sold Mark Rothko's "White Center (Yellow, Pink, and Lavender on Rose)" for $72.8 million to an anonymous buyer. The top sale at Christie's was Andy Warhol's "Green Car Crash," which went for $71.7 million in May.

Among private art deals, a group of investors reportedly paid artist Damien Hirst $100 million for his diamond-encrusted skull, "For the Love of God."

Collectors got skittish only once, when a Vincent van Gogh landscape guaranteed to sell for $35 million went unsold at the Sotheby's Nov. 7 Impressionist sale in New York

Sotheby's shares fell by nearly one-third to $35.84 the next day. By Dec. 31, the shares had risen 6.3% from that point to $38.10 in 4 p.m. New York Stock Exchange composite trading.

Asian art and its buyers captured the most buzz. The wealth boom in Asia solidified Hong Kong's role as a major sales hub for art, not only traditional jades and Ming vases but also Asian contemporary art. Asian and Western collectors -- along with speculative investors -- traveled to Hong Kong, or bid remotely, for works by Yue Minjun and others. Christie's sold $466 million of art in Hong Kong last year, up 28% from the year before.

Interest peaked in October, when Mr. Yue's painting called "Execution," inspired by the 1989 crackdown on protesters in Tiananmen Square, sold for £2.9 million, or $5.8 million, at Sotheby's in London -- another city where art sales are on the rise.

Henry Welt, a fine-arts business strategist in New York, expects the auction market to continue drifting east from New York to London and Hong Kong. "Asian buying is real and strong, and it will last because it's a reflection of their enormous wealth creation and demographics," Mr. Welt said. London is a "more convenient" hub than New York for buyers living in Europe, Russia and the Middle East, he said.

Currency fluctuations had an effect. European collectors took advantage of the weak dollar by flocking to art fairs in Miami and auctions in New York. In May, Europeans took home about half the art offered at Christie's New York evening sale of Impressionist and modern art, nearly twice as much as they typically buy. In November, the New York contemporary sales were dotted with London collectors such as jeweler Laurence Graff, who bid on works by Andy Warhol. U.S. enthusiasts tried to offset the weak dollar by reselling their art in once-overlooked auction spots like Paris.

Collectors from Russia, the Middle East and oil-rich states in the U.S. West -- all flush from the same global commodities boom -- invested heavily in art last year, especially works that reflected their regional cultures. Russians were "less affected by the credit crunch, fiercely proud of their mother country, competitive and cash rich," said Charles Dupplin, an art expert at specialty insurer Hiscox Ltd.

In September, energy-and-steel magnate Alisher Usmanov paid Sotheby's more than $40 million to buy an entire collection of Russian paintings, porcelain and glassware days before the collection was to be auctioned; Mr. Usmanov said he plans to donate the collection to the Russian government.

Christie's continued to expand its efforts to reach Middle Eastern art lovers by holding two modern and contemporary art sales in Dubai, which collectively brought in $24.6 million, up from a single, $8.4 million contemporary sale the year before.

Christie's said sales also were unexpectedly brisk for an under-the-radar collection of Western art featuring Frederic Remington bronze sculptures of cowboys on horseback, thanks to collectors in Texas and Colorado. Overall, Christie's brought in $240 million in sales of American art.

Some art experts worry that the auction houses have become too reliant on risky tools to attract business.

For the major fall auctions of Impressionist and contemporary art in November, Sotheby's and Christie's used guarantees -- effectively assuming the risk involved in selling artwork at auction by promising the seller a specific but undisclosed price -- to buy outright a combined $1 billion of art before the sales. Their total tally for those fall sales was $1.7 billion.

Sotheby's Chief Executive Bill Ruprecht said guarantees are profitable and will continue to be used -- especially since there are no signs that art buying is slowing.

In December, a British buyer surprised the art world by paying Sotheby's $57 million for a three-inch-tall ancient limestone figure of a lioness estimated to sell for as much as $18 million.

"Fears about the market's health and liquidity do have an effect on us somewhere down the line," Mr. Ruprecht said, "but 2007 was an awfully 

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