Maryam Meddin is the managing director of Clarus Design, a London-based corporate consultancy. For more information, visit www.clarus-design.com
There is an inverse relationship between the success of private equity firms and their public image. As they have prospered, so the clamour of their critics has reached a deafening pitch.
It was always in the nature of the private equity business that neither the firms, nor their managers and investors sought a profile or public approval. Those days are over. We are in the information age. With daily internet blogs, media-proliferation, the public's insatiable appetite for news, and stricter standards for corporate governance, no business can afford to shun publicity. Where there is an information vacuum it will be filled – usually with misinformation.
So for private equity firms today good financial returns are not the only performance indicator. Positive perceptions of their businesses make a material difference. It's more important than ever to influence perceptions, to promote and protect corporate image. Reputation is a valuable asset and requires management.
Albert Einstein observed, “Reality is merely an illusion, albeit a persistent one.” Fortunately a company can create its own reality – its brand. This brand can communicate a powerful and compelling corporate story that, effectively managed, can reach and influence a firm's target audience.
The need for transparency
A year ago, in response to concerns from the British Venture Capital Association about the ailing reputation of the UK private equity industry, Sir David Walker published the Guidelines for Disclosure and Transparency in Private Equity (“The Walker Report”). A media storm had erupted early in 2007 criticising the British buyout industry with headlines such as “Private equity faces backlash”. “the bare knuckle and ultra-secretive world of private equity”. The PE industry was collectively described as “locusts”.
In practice only a small percentage of firms are recommended to comply with Walker's guidelines, subscribing to greater transparency by producing an annual review and regularly updating websites (in both cases concentrating more on a narrative than on financials). Nevertheless greater accountability and public dialogue is undoubtedly the way forward for all private equity firms, and not just in the UK but across the globe. Whether individual countries issue their own guidelines must be viewed as immaterial and PE firms, irrespective of their location, must be proactive in telling their stories. It is not just a matter of answering the critics and addressing the caricature of private equity investors as shadowy unscrupulous individuals. It is time for private equity to put across its persuasive standpoint and take control of its public image. For although the media is currently less vocal about the ills of private equity (possibly due to the distractions of the global financial crisis), many negative myths persist.
The opportunity to put out information in a controlled manner, such as through the production of an annual review, must be viewed as the supreme marketing platform, the perfect chance to construct a brand reality and a corporate narrative. By defining and defending a brand, an organisation can determine how it is perceived from within and from without. It should never leave its reputation open to chance and vulnerable to ill-informed market rumour. In a niche industry that regards itself as having more than its share of star players, the marketing opportunities offered up to a private equity firm through proactive communication with the outside world don't just enable it to address the interests of potential stakeholders, but also to appeal to potential hires. After all, attraction and retention of a top quality team is commonly recognised as the key ingredient of a PE firm's long-term success.
Those who oppose openness may ultimately put their commercial freedom at risk. The tide has turned. In the UK, Walker represents a tipping point in the destiny of the private equity market. Either firms seize the chance to win the hearts and minds of their communities and target audiences by embracing transparency, or, face greater strictures and scrutiny from the financial authorities and the broader public. Harsher economic conditions compound the need for action. When whole economies are in near free-fall, companies fail, and people fear for their jobs, then governments turn to regulation in an attempt to control events. Private equity is a prime target for the regulators – just last month the European Parliament was once again considering calls for stricter rules to govern the industry.
Creating and managing the brand
Accountability means a changed mindset, an outward orientation. Like any commercial venture, a private equity firm should constantly acknowledge and analyse the needs of its audiences and if necessary conduct a review of its existing brand proposition. This is known as ‘brand engineering’.
A brand embodies the core values of a company, what it stands for, and its proposition to its target market. Brand is a dynamic, interactive thing and each member of a firm's audience may have his or her own legitimate agenda. In the case of a private equity firm, that audience includes potential and existing investors and stakeholders, regulators, recruits, the media, financial analysts, the companies within its portfolio and their employees. The challenge is to satisfy, credibly, all of their desired perceptions of reality.
Conducting research designed to test the perceptions of target audiences is often a good starting point. Through such an exercise, known as an ‘image audit’, image problems can be addressed and a positive new proposition agreed. A firm must decide on the qualities it wants to communicate, e.g., superlative returns, sustainable investment, a highly talented team or ethical business practices. These qualities can then collectively make up the core values that lie at the very heart of the firm. From this point a brand may emerge.
In an industry where many firms operate in common markets and few fundamental differences may be found between the value-add of one firm compared to the next, the main distinguishing feature that remains is an organisation's unique identity and culture. A private equity firm is unlike a product manufacturer, in that it is selling its financial, managerial and commercial expertise, all intangibles. However, its achievements are tangible. Its style of operation and the company culture, the expertise and integrity of its team, the companies and projects it invests in and how those in turn are perceived in the marketplace – all of these play their own part in making up the ultimate brand by which a firm's reputation is determined.
Communicating the brand
Internal consensus on ethos must be achieved if a patent public profile is to be communicated. People are a fundamental element of brand success. Where employees have a strong understanding of a firm's goals and ethos, they strive to achieve or maintain them with a determination that supersedes simple financial gain. They commit to the firm, believe in what they are striving towards and invest themselves more wholeheartedly. There is no better ambassador for a company brand than a committed member of its staff – and this applies as much to the receptionist as to the managing partner.
By the same token, integral to the management of a firm's brand is clear and consistent communication. The firm's marketing activities as a whole, from its printed and digital collateral to its PR activities, media relations, lobbying, networking and particularly its language, have to be thoughtfully structured to represent the organisation sensitively and accurately.
With these foundations in place, a firm is well prepared to engage in activities enabling it to proactively project its desired profile. It will be in a position to engage with its critics, establish a dialogue face-to-face and in the media. By way of example, organisations like BP deal publicly with their detractors. BP has met environmentalists head-on with its own high profile environmental strategy of ‘Beyond Petroleum’, or thinking outside the barrel. Similarly, the pharmaceutical industry, for instance, GlaxoSmithKline, regularly confronts anti-vivisectionists in an ongoing public debate. Such openness allows a balanced picture to be presented. There is no reason why private equity firms cannot follow suit.
“The opportunity to output information in a controlled manner, such as through the production of an annual review, for example, must be viewed as the supreme marketing platform, the perfect chance to construct a brand reality and a corporate narrative”
Private equity has a compelling story to tell. It is entrepreneurialism writ large. The industry boasts many talented people who achieve results. They make flagging companies more efficient, coax success out of failure, create jobs and seed long-term investment in communities. At best, private equity generates wealth, indeed it offers one vital route out of recession. Here is good ammunition for a lively discourse with the industry's adversaries and naysayers.
Rolf Jensen in his work, Dream Society: How the coming shift from information to imagination will transform your business, states, “Leaders will have to become storytellers first and managers second in the new society.” An energetic telling of the tale of private equity will enable the industry to emerge from the current crisis far better understood. Private equity cannot seek anonymity; it must show its public face.