Last week I had the opportunity to attend the annual meeting of the Intangible Asset Finance Society. The meeting provided a forum for panelists and attendees to share ideas about how a company can best protect its intangible assets. Intangible assets include not only legal assets (patents, trademarks, copyrights, trade secrets) but also other intangible competitive advantages (such as know-how, customer goodwill, and supplier/distributor/collaborative relationships). Various sources have estimated that intangible assets make up between 65 and 80% of the market value of most S&P 500 companies.
One of the most interesting discussions related to actions that companies can take to protect the security of valuable brands. Although registration and enforcement of a trademark is important for brand security, managing the goodwill associated with a brand can be even more important. Goodwill can have many elements: reputation, consumer loyalty, perceived ethical standards, and collaborative relationships all factor into the overall perception of a company’s goodwill.
Goodwill can erode quickly when an adverse event occurs. We’ve all seen examples of recent challenges to corporate goodwill: lead paint on toys, harmful bacteria on produce, external tampering with pharmaceutical packaging, potentially illegal activity by employees, accidental disclosure of customers’ personal information. How well a company recovers its goodwill in such a situation depends in large part on the company’s preparation for such an event.
The panel discussed many actions that a company can take in order to protect its brand security. Recommendations included:
- Manage supplier relationships. Make your relationship meaningful to the supplier. Where you can consolidate suppliers, consider doing that so that losing your business will really matter to the supplier. Consider the supplier’s resources and ethics, and ask how capable (and willing) they will be to correct an adverse event. This will make the supplier more likely to guard its – and, consequently, your – goodwill.
- Have a backup plan for your intangible assets. Although supplier consolidation can be good, too much consolidation can also create problems. If one supplier stumbles, be ready to quickly switch to another if needed.
- Get insurance. Insurance should be a requirement of almost every supplier agreement. Tie the insurance to adverse events that can harm your goodwill. Where possible, have your company named an additional insured on the supplier’s policy.
- Train all employees in the importance of brand management. Employees should be given chances to take ownership of the brand. Employees who present a positive image of the company, and who recognize that quality and customer service results in business, customer loyalty, and (ultimately) job security and success can be your best front-line guardians of the brand.