Business Turnaround & Transformation

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September 2014 | business-reporter.co.uk

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BUSINESS TURNAROUND

Leadership is a state of mind, not a set of characteristics

Interview

If you want to save a company, you’ve got to fall in love with what you are doing, says business analyst William Kendall

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Business Reporter · September 2014

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Business Turnaround & Transformation

Opening shots René Carayol

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RECENTLY had the special opportunity of interviewing one of the UK’s premier turnaround business leaders, Allan Leighton, in front of a packed house at the Mayfair Hotel in London. There were many great moments, and a standout quote: “Companies don’t die – people kill them”.

This took me back to my time at Marks & Spencer during the 80s and early 90s. Its clothing business had a phenomenal market share with a formula that hadn’t changed for years, and had yet to stall. The forceful and outspoken chief executive was Rick Greenbury, his impulsiveness tempered by the calm, thoughtful chairman, Lord Raynor. Rick was a brilliant merchant, but his ego couldn’t resist a good scrap.

When the City challenged his boast that M&S’s profits could hit a billion pounds, he just couldn’t back down and eventually trashed the business in delivering the billion pounds of profit in 1998.

While making them the second most profitable retailer in the world after Wal-Mart, the business is still shaking from his single-minded assault, as he burned everything that made it special in order to deliver that billion pounds.

Perhaps the suicidal move was when Rick became both chairman and chief executive when Lord Raynor retired, lacking any check or balance on his gung-ho and autocratic behaviour. History

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Trying to radically move away from what has made you great requires a deft touch tells us that leadership transitions are vital moments in terms of continued growth or completing a turnaround.

Hindsight tells us that the transitions at Tesco, BlackBerry and Nokia were all botched. Nokia tried to move away from low-cost consumer handsets to become a key competitor to the smartphone giants Samsung and Apple. By wanting to be all things to all men the brand has blown up in their faces.

BlackBerry tried to do the absolute opposite.

Going from the safe and secure handset of choice for all business people to, again, trying to take on the smartphone giants Apple and Samsung, has left them with a near-death experience.

Trying to radically move away from what has made you great requires a deft touch, otherwise the baby may be thrown out with the bath water.

A few years ago, I had the mixed pleasure of

interviewing Lou Gerstner, the former CEO of IBM. He was on the speaking circuit, sharing secrets from his bestselling book on corporate turnarounds, Teaching The Elephant To Dance.

He was as hard as nails and as blunt as one could be, but he was also clarity personified.

Gerstner had a simple and clear objective that he never lost sight of – save the company.

It took him nine years, but IBM’s share price rose eightfold and its market value increased by $150billion. The trick was to move from hardware to software, with a mantra that everyone in the organisation understood: “Selling services, rather than shifting boxes.”

Gerstner’s successor was Sam Palmisano. He had spent more than 30 years at IBM and was very different to his predecessor. The clever trick that IBM pulled was to move Gerstner, the first ever outsider to lead IBM, to the position of chairman, and help bed in the insider, Palmisano. Gerstner was memorably quoted when responding to a question “What was his vision for the company?”, responding: “The last thing IBM needs now is a vision.”

A quick glance at the transitions at M&S sees CEOs coming in, CEOs departing, and the new leader feeling they have to start from scratch.

Despite the disruptions, M&S still has a near-11 per cent share of the UK clothing business – unbelievably high in these ultra-competitive times. Perhaps the real issue for the likes of M&S is that they have become national treasures, much like Barclays and British Airways. They retain incredible loyalty, but also attract unbelievable criticism. While people may well kill companies, people can also save them.

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Business Turnaround & Transformation

Turnaround skills seen as greater asset

Zombie companies: investment needed to spark revival

By Joanne Frearson ZOMBIE companies which struggle to pay their debts, existing by only paying off the interest on their loans are considered to be a drag on the economy.

Last year, research from financial health monitoring specialists Company Watch showed there were more than 227,000 zombie companies in the UK, an increase of 108 per cent from five years ago before the recession took hold, when there were 109,000 zombie firms.

But there is hope yet for the corporate walk ing dead.

Business turnaround is possible for zombie companies if investors are willing to inject the money necessary to make them come alive. Amin Amiri, principal at a2e Venture Catalysts, says: “In a lot of cases, companies are zombies because they can’t have access to appropriate finance. Even if they get an order, they cannot fund it.”

According to Amiri, demand is supressed, and there has been a death of appropriate capital for companies – especially small and mid-market ones. He says: “Lending to small and midmarket businesses by the big banks has continuously gone down in the past six or seven

years. The real issue is a structural one, in the sense that we only have four big banks in the UK and they dominate the lending to the small and medium-sized businesses.

“There is no competition.

There are a lot of smaller players that provide lending, but if you add them all up it is less than 4 or 5 per cent of the total lending.”

Amiri has been helping to save zombie companies by investing in them even if it means putting his own money in. He says: “That is what I found with container holding firm Eldapoint – I had to put money in personally. If there was nobody to put money in we could not take the orders.

“Eldapoint was a zombie because it was part of a portfolio of a private equity firm, which they were trying to close. There was no appetite for them to invest. The business was making losses or breaking even.

It would not grow and it would not go down. It was not bad enough to kill and it was not good enough to invest in. The private equity firm wanted to move it on.”

Amiri saw potential in Eldapoint. He says: “It is based in Liverpool, and this city is going to be one of the biggest

Amin Amiri turned around shipping firm Eldapoint, thanks largely to its location in a resurgent Liverpool

AN AILING brand can be protected through turnaround skills, says Christine Elliot, chief executive at the Institute for Turnaround (IFT).

She says: “Great brands have been protec ted because turnaround professionals were brought in at the right point.

Turnaround skills are being used muc h more as a management tool.”

Another trend she is seeing is along the governance trail.

She says: “At IFT we require all our members to be accredited.

The accreditation does not simply mean having exams which all our people do anyway.

It means proving you have the credentials to do the job.”

She believes the companies that are embracing governance as opposed to waiting to be regulated are those that are gaining a competitive edge.

Turnaround is about adding value to a business. She says: “It is about using those specialist skills to boost the potential of a business and help them grow and do various other things.”

Elliot believes it is important to recognise that there are different ways of achieving turnaround. It is crucial in distressed situations to give businesses every opportunity to grow, rather than close them immediately.

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ports in Europe next year.

To me this was gold because once Liverpool 2 opens, there will be more shipping liners coming to the city.

“Eldapoint owned six or seven acres of prime container space in Liverpool. If we put up the housing rates for keeping the containers by 10 per cent we could generate about £1million of profit.”

Amiri also split Eldapoint’s manufacturing division from

its container section with a view to selling it later as a separate division, and is seeing the firm emerge from its zombie status.

He says: “We paid nearly £4.5million for it and it had made no profit in the year we bought it. [The following year] it made £100,000 and we are hoping the year to March 2015 it will make about £800,000.”

It seems that, with a little bit of love zombie companies can return to life.

New credentials for turnaround profession THE EUROPEAN Association of Certified Turnaround Professionals (EACTP) is developing the first Europe-wide accreditat ion prog ram me for a ll turnaround professionals.

Jan Adriaanse, professor of turnaround management in the Business Studies department at Leiden University is helping to develop the programme. Adriaanse says:

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“It is very important for turnaround management practitioners over Europe to understand that their profession needs to have this type of programme, to help enhance the reputation of what they do and the skills involved.

“It is difficult to know who is good and reliable to work with. If there is an established programme with an exam and

practitioners who are certified and assessed it gives much more reassurance to people.

“There is also an EU recommendation that member states move quickly to have a pre-insolvency consensual turnaround process in their law to facilitate business recovery before insolvency, so having such a qualification will be a real benefit for practitioners working in this area.”

STRATEGIC CORPORATE FINANCE Corporate finance and business strategy advice go hand in hand and must be part of any Turnaround plan. Our Strategic Corporate Finance team will not only take you through the Turnaround transaction, but also the long road of recovery arising from a Turnaround.

Together our strategy and corporate finance team will determine what’s required to reach your business goals, we can and maximise the performance and value of your business.

For further information please contact Simon Blake on +44 (0)800 4346460. www.pricebailey.co.uk

Corporate Finance services are undertaken by Price Bailey Corporate Finance Limited, part of the Price Bailey Group. For regulatory information please visit www.pricebailey.co.uk/legal

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Business Turnaround & Transformation

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Turnaround in a nutshell SMEs lead the way to restructuring our economy INDUSTRY VIEW

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dmit it, you looked at this article’s title and – unless you’re a practitioner in turnaround – are going to turn the page or stop reading.

You expect a homily about coping with adversity in business and quite frankly, you wouldn’t want to be in the same room with companies “in trouble”. That’s a perfectly understandable reaction, given some interpretations of the “t-word”. Instead, let’s talk about people, because they, in a nutshell, are what true turnaround is about.

In 2013, there were 4.9 million businesses in the UK; more than 99 per cent small or medium-sized businesses employing up to 249 people. Calling these companies SMEs somehow diminishes their economic and social importance, relative to the charmed circle of publicly quoted companies. It is the people who run these SME companies – and the people working in them – who have a major stake and role in bringing about the sustained economic recovery, and one that can benefit the majority of people in the UK.

Recessionary hangover Some features of our recessionary hangover concern policymakers such as the Bank of England and sufficiently to restrain any sudden or material hike in interest rates.

First, there are changed employment patterns, as there are more in work but on short-term contacts or working part time.

There is a large, puzzling shortfall in productivity, which underpins estimates of the economy’s ability to grow without generating too much inflation. Some analysts attribute the lack of real growth in wages to the UK’s low productivity. Low wages mean less discretionary spending and more hardship. Overall, British workers now produce about a fifth less for every hour worked than any other leading G7 nation. There is also the inequality between regional share and the City and the London faster bounce back from 2008.

As sharp as the northsouth divide is the relative fiscal and financial treatment of SMEs and tradeable stocks. IFT research has shown that even back in 2012, large companies thought lending conditions were improving.

Smaller ones faced steeper fees, shorter term lengths

and higher interest rates.

Then there’s reward in proportion to value. The average FTSE 100 chief executive’s pay increased from £4.1million to £4.7million in 2013, said a July report from the non-partisan High Pay Centre.

With executive pay in FTSE companies almost 180 times more than the average worker’s, is it really any wonder big business has failed to re-establish trust in the wake of recession? In the face of a rapidly widening inequality gap, in which the “squeezed middle” has become the disaffected new working class, are we kidding ourselves that this situation is sustainable? The High Pay Centre says: “A maximum pay ratio would recognise the important principle that all workers should share in a company’s success and that gaps between those at the top and low and middle earners cannot just get wider and wider.”

Ignorance inhibits growth SMEs have the potential to change this unappealing economic and social landscape. According to the FT, “the biggest bar to growth remains ignorance”.

A recent study of 300 SMEs, commissioned

by Money & Co. claimed UK SMEs had an annual unmet need for finance of £4.3bn.

Whether for growing or turning around companies, it’s never an issue for FTSE businesses. But SMEs have found it especially tough to get access to affordable capital and a level playing field on which to invest. Yet the SME survivors, who have ducked, dived and adapted through the lean years, are well placed to deliver the economic boost and inclusivity we need in the UK. SMEs are culturally significant too.

Of SME employers, according to The Department for Business, Innovation and Skills (BIS), 19 per cent were led by women in 2012, five points up on 2010. A further 23 per cent of SME employers were equally led by men and women, meaning that 42 per cent were part-led by women. In other words, it is a more balanced mix of talents, often reflecting family ownership.

SMEs boost the wider economy SMEs are geographically essential to spreading the benefits of growth and prosperity. It is clear that they could do so faster and less riskily by harnessing the skills and experience of accredited turnaround professionals. Turnaround is like an advanced driving test of business, and it’s only a success if it’s sustainable.

Parachuting in for six months, while a company is in crisis to do a financial fix should not be the end-game, because at best it creates a

watershed moment during which turnaround can be completed. A short, sharp turnaround can fix a company so it survives – but for how long? Insolvency has long been recognised as value-destructive, and the jobs it creates are not necessarily long term. So how will latent but stagnating value be reclaimed?

True turnaround is, in IFT’s definition, “the sustainable return to viability of an underperforming organisation”.

Underperforming could just as easily be an organisation needing to scale up, or grasp the opportunity of internationalising, or integrating an acquisition, or adapting to new distribution channels and technologies.

It’s a step-change that needs to be executed at speed and with simplicity and focus.

Accreditation counts At the Institute for Turnaround (IFT) we have always been committed to insisting that our members prove their credentials to do this stretching work, not only by virtue of paper-based qualifications, but by an assessment of performance across 40 core competencies. There are three independently validated case studies, the testimony of two appropriate sponsors who reference the applicant’s longer career, and a testing interview that justifies our application process as being described as robust, transparent and consistent. You cannot just join IFT by paying a subscription, you have to prove worthy of the brand. After all, you wouldn’t entrust your company’s brand to an unproven quantity. Year-on-year, each member is required to complete an annual declaration and to satisfy the institute that relevant Continuing Professional Development (CPD) has been completed.

IFT established the world’s first Practising Certificate for Turnaround Professionals and this carries extra requirement in terms of CPD, professional indemnity insurance, independent auditing and so on.

There are benefits too, for the turnaround professionals who use the transformative aspects of their skills. Diversifying their application away from only stressed and distressed situations, broadens their options at different times in the economy’s and companies’ existence.

Academic Dr Andy Bass and I believe that a portfolio of engagements at various phases in the business lifecycle increases

the impact of the work the accredited practitioners are doing because: • You transfer learning and experience • You work in a broader range of sectors and facilitate cross-pollination of ideas • You are likely to empower management in a way you cannot when you are the focus of a single deep engagement

Business is people Those in the turnaround community are uniquely placed to lead the necessary shift in British business: the exciting thought is that it’s a perspective-only shift. The skills of turnaround professionals can add great value in a broad range of phases, and it can be personally and professionally rewarding for accredited professionals to apply them more broadly. Ensuring the survival of an enterprise is a crucial goal if it is potentially viable. However, open up your thinking and get ahead of the competition by getting the right turnaround practitioner alongside.

He or she should have the knowledge and experience to make your company go further and help it to thrive.

Ultimately, UK plc is not going to recover through financial restructurings alone.

We need people to focus, operate and grow real businesses. The only way to drive sustainable turnaround is by winning hearts and minds and by changing behaviours and culture. That is why regulators in the financial services sector are so fixated on principles-based regulation – because rulebooks document obstacles that can be navigated around, whereas principles deal with high-level behaviours, cultural norms and standards. Turnaround, from whatever starting position, sets out a road map towards better business and economic success. In a nutshell, turnaround is about one thing: people.

So let’s hear it for specially magnificent enterprises, the SMEs that can enrich the UK economically, socially and culturally.

The savvy ones know that with turnaround knowledge and resources, they can do it faster, cheaper and smarter.

Christine Elliott (left) is the chief executive for the Institute for Turnaround +44 20 3102 7710 www.instituteforturnaround.com

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LORD ADEBOWALE EXCLUSIVE

By Joanne Frearson

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ORD Adebowale has a big, friendly smile on his face as he greets me in his office. His humanistic approach to management and leading change in business is evident.

He tells me people like to be managed by someone who is human. His background when it comes to managing organisational change is impressive. In 2013, he won the Institute for Turnaround (IFT) Foundation Award for his work in the third sector.

Under his leadership at social care enterprise Turning Point, where he is chief executive, annual turnover has increased threefold. He attributes changes at Turning Point not to himself, but to having an amazing team. “The people I work with now are great,” he enthuses.

Lord Adebowale says his colleagues at Turning Point are people who “I would choose to play with if I were at school in the playground. They are great to work with. We have done a good enough job to date, and there is lots more to do here.”

According to Lord Adebowale, there is no distinction when it comes to turning around and changing a private company or a charity. It is about putting the services and clients first.

He says: “When I wake up in the morning and I am at Turning Point, I am legally obliged to improve the lives of our clients. On the way to do that, it would be a good idea if I was legal, safe and able to grow the company.

“If I worked for some private equity company, I would wake up in the morning and be legally obliged to improve short-term or long-term shareholder value and on the way to doing that it would be a good idea if we were legal, safe and growing the firm.

“Organisations change for all kinds of reasons – to increase profit margin, market share, mergers and acquisitions… ultimately, the changes at work are all driven by a thorough understanding of the dynamics that occur between groups of people.”

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UCH of the change work Lord Adebowale has undertaken is helping leaders to understand the different groups and dynamics that there are in an organisation.

He says: “Turnaround is a change exercise, and you have to understand not everyone is in the same place as the leadership.”

Although there will be some people who will be excited about the change, he says, “unfortunately most people are in the middle, while there is another group of people who are mourning the past”. The leader has to take everyone with them.

But no matter whether a person wants to go along with the change or not, it is important not to brutalise people.

When this happens, he says, “the people remaining look at it and think, what kind of an

Leaders need to be realistic about what they can achieve organisation is this? What will happen to me if I say, wait, hang on? All things will be lost.

“People should be treated well in either circumstance, because what can sometimes kill a culture is people watch how people who dissent are treated. People generally like to be led by other human beings. It just helps. You have got to be human, which is hard to do sometimes because the more power you have, the more it can weaken your humanity.”

Lord Adebowale is fascinated by organisations and leadership and how it works in different

settings. Besides his role as chief executive of Turning Point he also sits in the House of Lords as a crossbench peer, advising the government on mental health and learning disability issues.

He believes it is important to distribute leadership throughout the business which, though counter-intuitive in the Western model of leadership, he feels is necessary.

He says: “Our culture here is to encourage people to take on not just management roles, which are the understanding and distribution of resource, but to understand their role as

individuals on what I call the leadership state of mind. Leadership is a state of mind and not a set of characteristics – understanding who you are and where you are, and the impact that has on you and the people that you lead, is crucial. That is easier said than done.

“Leaders need to be realistic about what they can and can’t achieve. Things that are very difficult to do – they have got to be prepared to walk away from things if they are not working.

They have got to understand when to say no.

“They have got to have mechanisms, what I call a line of sight to what is happening on the front. As far as change is concerned, never discount the need for help.”

Lord Adebowale is inspired by the people he works with. For him, it is about being human and wanting to improve the human condition.

He says: “I consider it a huge privilege for someone to trust us at that point [when they are low] in their lives, and everybody whether they are rich, poor or powerful will come to that point. And at that point I hope they will receive a service from someone who they can trust and for whom that person considers it a privilege to have that opportunity. I am inspired by the people that I work with.”

Turning around an organisation can be incredibly difficult and challenging. Lord Adebowale has dedicated his career to understand how the different dynamics within a firm work. When a company takes on a hu ma n ist ic approac h to ma nag i ng turnaround, real change can happen.

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The big interview William Kendall

By Joanne Frearson

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ExpertInsight

RANSFORMING a company can be a bit like falling in love. William Kendall, the entrepreneur who helped revitalise both the organic chocolate firm Green & Black’s and New Covent Garden Soup Company, has a philosophy – if he can fall in love with a product, then it is likely his customers will as well.

“Before I have even got involved I have fallen in love with the idea,” he tells me down a crackly phone line. “Then you try and work out all the bits that are working and the bits that aren’t.”

It is the story behind a business which normally makes Kendall fall in love with it. He fell in love with Green & Black’s because “chocolate is a bit like wine,” he says. “There is a huge expertise in producing the raw material in chocolate.

It can mean the difference between having a good or a bad product. I love that side of it. I love businesses with stories as I like telling stories.”

For Green & Black’s, it was about creating a brand which would make people think they had “discovered chocolate for the first time and to share this secret with their friends”.

Kendall’s transformation of Green & Black’s was impressive. When he acquired a stake in Green & Black’s in 1999 it was only turning over “a couple of million pounds and losing quite a lot of money”. But after six years, Kendall transformed the business to the point where it was turning over £30million to £50million. The firm was sold to Cadbury in 2005.

New Covent Garden Soup Company has a similar success story, and was the first business Kendall ran before his adventure at Green & Black’s. He became involved in the soup company around 1990, saying that when he first

Try to fall with what

took over “we turned over £2million and then amazingly we lost £2million”. But eight years later, the fortunes of the company changed.

It was making a turnover of about £20million when Kendall decided to sell up in 1998.

He was drawn to New Covent Garden Soup Company because of his habit of making loads of soup for his friends at the time. “I was in my mid-20s and we had a farm in the country,” says Kendall. “I was having lots of friends to stay. At that stage we were not brilliant cooks and I used to produce gallons of soup.

“I realised the versatility of it all and realised that people wanted home-made, quality soup. It appealed to me and my generation – we wanted really good-quality food made with good ingredients. We did not want over-processed food, which was what was available at the time. There weren’t any [decent] ready meals being produced.”

But a company that has great ideas and stories must also have a good financial system in place

in order for it to really be transformed. “Usually in the businesses I have been involved in, the numbers have not been very good,” he says.

“There is normally a very detailed financial plan from the entrepreneur which says we are going to achieve this, and then there is someone who is collating the numbers.

“But normally the systems [they have in place] are not brilliant and people are relying on flawed information. Running any business with flawed numbers is very difficult.” In the early days of New Covent Garden Soup Company, Kendall says he worked with a “brilliant” commercial finance director.

“He is just one of those people who likes to analyse figures,” he says. “He likes to find out, he is like a pathologist, he probes and probes and probes. He tends to be quite doubting and when the sales director says we have a wonderful new concept, you need someone to come along and

Coming out of an economic coma Get your business back on the growth path INDUSTRY VIEW

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ix years of economic gloom have left many businesses in a commercial coma: alive, but only just about holding on.

These firms were forced into hiding when market conditions became tough; they are now contemplating if and how to respond to improved trading conditions.

According to Steve Benger (left), founder of small business growth specialists Accelerus, growing your business is a skill which needs practice and help.

“Many small businesses have been badly bruised by the recession and are reluctant to jump straight back into the ring now the fight is on again,“ he said.

But Benger is adamant that now is the right time for SMEs to re-engage with growth as the economy picks up, banks realign their lending policies and the government launches multiple initiatives to stimulate growth.

To help businesses back onto the growth path successfully, Accelerus has developed a 50-point business health check. It assesses a company’s operational and commercial acumen for growth, and builds plans that will enable it successfully and sustainably.

“Our job is to help businesses regain the confidence they had when they first started up, “ Benger says.

In most cases, the stumbling blocks on the

road to growth are managerial or operational. Either the leadership needs objective, situational experience help, or the business processes need reviewing.

When an ailing joinery company called in Accelerus, the management was reeling from five years of lacklustre sales, bad debt and poor cash flow. It was slowly going downhill and the owners were losing heart. After spending time inside the business, Benger was able to identify operational efficiencies and release hidden cash, which helped the firm to respond successfully to the housing market boom. It is now delivering 40 per cent growth and in turn, the associated increase in profitability and cash headroom.

Steve Benger is the founder of Accelerus 0800 773 4382 www.accelerus.net

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in love you do say, are we selling it at a profit? It is not about having a beautiful system like the one you were taught to do when you did your university degree.

It is about having a system that tells you what is going on in real time.

“Not only does it have to reveal that information, it also has to reveal it in a way that other people, the non-financially literate or semi-financially literate can understand. What you want are the people out there who are selling, marketing and producing to understand the dynamics of the business.

“You want the people who are developing new products to understand, if they are selling new products and if they don’t develop them with the right margin, it is a complete waste of everyone’s time. They need to know if they go below a certain price they are damaging the business that they are working for.

“Information needs to be obtained quickly and accurately – if it takes you weeks or days or months to find out what went on yesterday then it is useless.”

Kendall does not believe things happen overnight, and fixing one problem can often reveal another series of problems. He says: “Getting a business to work is about getting a thousand things right. You try and fix the big problems f irst, but you do not necessarily get that much payback from them because they end up revealing another set of problems.

“There is no such thing as success straight away.

My adv ice to anyone starting out in business is to make sure you have got enough money, to make sure you have got enough petrol in the tank. If you think you have enough petrol in the tank, double it, as it is never enough.

“When the business starts to turn around it takes a long time. You have to say, this organisation is in intensive care, but the figures do reveal if the things we are trying to fix are being fixed.”

Presently, Kendall is involved w it h lots of ea rly-stage businesses. He is working with his Covent Garden/Green & Black’s team at drinks business Cawston Press, which produces a low-sugar fruit juice product.

He says: “At the moment we are just in the building mode. The great thing about the drinks and food industry is that once you get to a certain level it is much easier to grow. There is a growing number of people who do not want too much sugar in their drinks – we should all be drinking more water, but we do not always want to drink more water. We are trying to provide a solution for that.

“We have a great bunch of people working there. We have some senior people, luckily, who have some experience of doing it before. We just want to grow it. We have got lots of export markets opening u p. T h i s c o u l d b e a £25-£50million business.”

Consumers have certainly fallen in love with the brands Kendall has helped create with Green & Black’s and the New Covent Garden Soup Company – products that are now a staple part of many consumers’ shopping trollies.

A love for an idea, and putting a solid financial system i n place, ha s helped transform these brands to grow to multimillionpound businesses.

Business Reporter · September 2014

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CHOCOHOLIC: William Kendall, left, revitalised the New Covent Garden Soup Company and took over ailing chocolatiers Green & Black’s – both went on to become multimillionpound success stories

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Protective Transforming business fortunes measures to take today INDUSTRY VIEW

Tony Groom K2 Partners

Tyrone Courtman Cooper Parry

www.k2-partners.com tony.groom@k2partners.com

www.pkfcooperparry.com tyronec @cooperparry.com

Ward off market uncertainties even in times of growth INDUSTRY VIEW

T

Justin Stephenson Jeffrey Green Russell

David Hole Galen Partners

www.jgrweb.com cjs@jgrlaw.co.uk

www.galenpartners.co.uk davidhole @galenpartners.co.uk

Neil Chesterton The MacDonald Partnership

David Bryan Bryan, Mansell & Tilley

www.tmp.co.uk neil_chesterton@tmp.co.uk

www.bmandt.eu dbryan@bmandt.eu

ransforming a business is not about restructuring the balance sheet to make it look solvent, it is about fundamentally changing its prospects. The best way for management teams to transform the fortunes of a business is to use independent advisers who can tell them how it is and what they need to do in order to grow.

Tony Groom, chief executive at K2 Business Partners, says: “As advisers our focus is on saving the company by transforming its fortunes and achieving growth, not an insolvency appointment which tends to be preferred by the insolvency profession.

“We have a pivotal role to play transforming the prospects of a business future that finds itself short of cash. There are a lot of overinvested companies that, if properly advised, could grow.”

Guidance from independent advisers is crucial to avoid conflicts of interest. Tyrone Courtman, partner and head of restructuring at PKF Cooper Parry says: “Whoever the stakeholders are imposing on the business, it is critical for the directors to recognise the need to take their own independent advice. Whoever is introduced by key stakeholders, typically the bank, may find themselves conflicted. This is likely if the imposed advisors are a bank-approved firm.

In such circumstances, to whom do you think the advisors’ loyalties are likely to lie?“ One possible way to secure a proposed advisors’ independence is to get them to confirm that they won’t accept an appointment as Administrator.

Justin Stephenson, director at Jeffrey Green Russell, says: “We don’t adopt a one-size-fits-all approach – we look at every option.

Pre-packs are one of many tools that should be considered by an adviser.

It should not be considered at the exclusion of all others. I am very happy to use pre-packs in the right circumstances. What I am not happy with is when they are used in every circumstance.”

Advisers also have access to funding. David Hole, partner at Galen Partners, says: “We have loads of money looking for a home and funders asking for an introduction to clients. The challenge for business owners is to make their proposition more compelling than everyone else when they might not be looking too pretty.

“The lender market has both debt and equity liquidity, but being lender and investment-ready is the key.”

A Company Voluntary Arrangement (CVA) can also be used. Neil Chesterton, director at The MacDonald Partnership, says: “The CVA remains a flexible and effective rescue tool, and is best used in conjunction with fresh funding.

CVA also allows a breathing space to stabilise and properly structure the business in its transformation.”

Successful transformations have the support of all its employees.

A consensual turnaround, says David Bryan, principal at Bryan, Mansell & Tilley, “creates the opportunity to negotiate win-win deals with all stakeholders to preserve value in the business, and also confidentiality. It is a way of saving the company without everyone else knowing and without creating adverse publicity.”

D

espite improving economic growth, a number of corporates are facing tough trading conditions.

Risks arising from future interest rate rises and a strong pound, in addition to fallout from world events such as the impact from recent EU trade sanctions on Russia, indicate that there are number of reasons for corporates to remain cautious in their outlook and ensure appropriate contingency plans are in place.

Favourable borrowing terms have helped corporates lower borrowing costs and made incremental leverage more manageable. However, many corporates are at risk of overreaching themselves, and whether refinancing or transacting, business plans must be subjected to rigorous stress testing.

We are witnessing increasing levels of bond issuances across Europe and for corporates; bond financing has two principal advantages – a bullet repayment profile and therefore lower levels of debt service and a higher degree of covenant flexibility. The combination of these factors can give rise to significantly higher refinancing risks (when perhaps debt markets will be less favourable) and increased liquidity risk.

Finance directors need to appropriately manage refinancing risk from the outset by optimising cash generation opportunities and earnings potential.

The importance of streamlining excess working capital should not be overlooked, particularly when the corporate agenda is focused towards growth, whereby inefficiencies in a company’s cash conversion cycle can often be overlooked – attributed instead to a necessary by-product of funding growth. In turn, more cautious behaviour stemming from inherent uncertainties in the broader economy leads to lower orders being made, delays to investment and a consequent impact on cash cycles.

Now feels like a good time for finance directors to take stock and make sure internal processes such as working capital management, business planning techniques and funding structures are not only enabling companies to be best positioned to take advantage of recovery in the economy, but also protect against downside risk.

Simon Granger is Senior MD at FTI Consulting LLP +44 (0)20 3727 1209 simon.granger@fticonsulting.com

Stay calm and take advice from the professionals INDUSTRY VIEW It has never been more important for directors to understand the personal claims that can be pursued against them if their company goes into liquidation or administration. Liabilities such as claims on personal guarantees are obvious, although other claims may arise as a result of company management. A common example is where a liquidator pursues directors for losses incurred when the company continued to trade after it ought to have been clear that liquidation was inevitable.

Directors are also running into difficulties with HMRC pursuing claims for unpaid NI, on the basis that HMRC has suffered a loss resulting from the director’s neglect.

However, disqualification proceedings continue to present the highest threat.

For many years they were reserved for directors involved in multiple insolvencies or in serious cases of dishonesty or mismanagement. Cases are now being pursued against directors with first-time business failures, often on the sole grounds that trade creditors have been paid while tax liabilities have been not.

Disqualification orders prevent individuals from acting as directors or being directly or indirectly involved in the management of limited companies. This can have serious consequences for a company director, as the minimum period of disqualification is two years.

Take and follow professional advice as soon as you identify an issue, as these problems can be avoided. Beware, though – the insolvency practitioner who you might consult with will not be providing you with personal advice on your position as a director.

Mark Lund is a solicitor and licenced insolvency practitioner at Turner Parkinson 0161 833 1212 www.tp.co.uk

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Like us: www.facebook.com/biznessreporter | Contact us at info@lyonsdown.co.uk | PPA member

Inspector Dogberry

Business Turnaround & Transformation

The latest Q2 insolvency statistics from trade body R3 show administrations and voluntary arrangements have remained at constant level for the past five or so years, while liquidations have fallen gradually since the recession.

“Other than an improving

The inspector was delighted to

will allow customers to track their

product, which works by removing

economy, not much has

hear from Reviveaphone’s Oliver

phone and be updated on the

corrosive mineral deposits

changed to have a big impact

Murphy, featured in Business

repair process. Customers can also

from waterlogged phones and

on insolvency numbers,” said

Reporter a few months ago, who

have their phones picked up for

electronics and restoring them

Phillip Sykes, vice-president

is about to launch repair services

repair via the new van service.

with no long-term damage, on

at R3. Some sectors, like the

Dragons’ Den. The company is now

legal sector have encountered

in discussions with Virgin, Easyjet

regulatory challenges, which

and Flybe to offer the repair kits

has led to higher insolvency

protected. Since securing funding

for sale onboard flights. The

numbers there, but for every-

he has sold his phone repair kits to

product is selling in South Africa,

one else the past few years

– in both online and van-based flavours.

Murphy secured funding for his original Revivaphone

Murphy has his brand well

more than 13,000 people across

New Zealand, Holland

the globe, and is on track to reach

and Mexico and will soon

his sales target of £200,000. The

be exported to The US,

new online service allows all parts

Canada, Japan, Australia

of the phone to be repaired and

and Korea.

have been the same story: low interests rates and lenient lenders.”

By Caroline Mortimer, Web Assistant

u Editor’s pick Marketing Donut’s Experts Blog The brainchild of the team behind Start Up Donut, this blog dishes out marketing and branding help to small business.

Written by marketing and new media experts, it dispenses advice on everything from how to avoid the “deadly sins” of social media to warnings about poor customer service.

CPA Practice Advisor’s Firm Management Blog www.cpapracticeadvisor.com

Insurer Aviva’s 2014 interim results indicate the company’s turnaround plan remains on track.

Mark Wilson, group chief executive officer at Aviva, says: “The half-year results show that momentum in Aviva’s turnaround continues. All of our key metrics have improved, operating earnings per share are up 16 per cent and book value has increased 7 per cent.

“We have reduced our debt, decreased expenses and increased profit – this is just good business. Aviva remains a work in progress and these results are a step in the right direction.”

The results showed in Aviva’s turnaround markets, Italy and Spain, the value of new business grew 49 per cent and 67 per cent respectively. France continued its strong trajectory with 27 per cent growth.

Scan-do attitude Researchers at MIT have invented

“What separates our system

a new type of tiny, smartphone-

from other anti-counterfeiting

readable particle that could be

technologies is this ability to rapidly

deployed to help authenticate

and inexpensively tailor material

currency, electronic parts and luxury

properties to meet the needs of

goods. The particles, which are

very different and challenging

invisible to the naked eye, contain

requirements.”

Primarily aimed at accountants, this blog from CPA Practice Advisor offers useful advice on taking control of your online brand and when to upgrade your technology to prevent your business falling behind. Useful advice which can be applied to any kind of business in any context.

Entrepreneur.com’s Growth Strategies www.entrepreneur.com/topic/ growth-strategies This blog provides tips, tricks and listicles as well as examples of businesses transforming their business models for a new era.

It also offers advice about what to do next after you’ve got the changes off the ground.

coloured stripes of nanocrystals that glow brightly when lit up with near-

Shopjacket’s Blog on the High Street

infrared light.

The micro particles could

www.shopjacket.co.uk/blog

be dispersed within electronic parts or drug packaging during the manufacturing process, incorporated directly into 3D-printed objects, or printed onto currency.

Paul Bisso, who started the project while on the technical staff at MIT’s Lincoln Lab, says:

ExpertInsight

9

The Official WWE app (Free – iOS, Android)

BoardPad app (Subscription – iOS)

Winner of the 2014 Shorty Award for Best Branded App, judges praised its use of social media and live streaming.

This app is designed to make meetings more productive, cutting down admin to leave room for innovation.

Shopjacket is a consultancy based in Newcastle, set up to help rejuvenate the high street.

It’s dedicated blog collates the best news and features around the media about the government’s plans to help.

A better way to rescue struggling businesses INDUSTRY VIEW

E

ver since the 1986 Insolvency Act ushered in the modern era for corporate recovery and personal insolvency, creditors and other stakeholders have been subjected to a procedural regime impenetrable to the outsider, suffused with opacity and having little regard to the burden of costs on an already insolvent estate.

For too long, insolvency practitioners have charged fees based on what seem to outsiders like stratospheric hourly rates and have been subject to little effective accountability, especially in smaller cases, or those where a high-street bank is not owed money. They have provided strictly limited information in compliance with undemanding legal requirements, leaving interested parties largely in the

dark. They have preferred to opt for formal procedures such as administration or liquidation, which deliver near-absolute control to the IP. The result is a deep-seated public mistrust of the profession and its actions, good or otherwise. After a series of high profile retail failures which highlighted miniscule returns for unsecured creditors and huge fees earned by IPs, the government has finally acted, consulting on far-reaching changes to the UK insolvency regime.

Before this threat to the old order emerged, some insolvency firms had grasped the reality that formal procedures destroy value, concluding instead that consensual work-outs should always be the first choice provided that experts are involved sufficiently early.

These cutting-edge firms are pioneering a new world of transparency, keeping those concerned informed

on progress far more extensively than the law requires.

Most of all, they seek to give stakeholders as much certainty on costs as possible by quoting and agreeing fixed fees at the outset.

A brave and uncomfortable new world perhaps, but this is the future for restructuring and insolvency professionals and a far fairer process for those on the receiving end of their expertise.

Steve Parker (left) is a partner at Opus Restructuring steve.parker@opusllp.com www.opusllp.com

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Industry

Business Turnaround & Transformation

Business Zone

The future VIEW An alternative option for cashflow management

T

he world of short-term non-bank finance has long been regarded as a backwater for the unscrupulous to feed on the desperate, usually with a broker paid for the privilege of bringing the two together. However, the increasing institutionalisation of short-term peer-to-peer lending could open up real opportunities for companies struggling to manage their cashflow to receive the funding they require.

I was an analyst and fund manager following the specialty finance sector for 25 years, before taking on my role as CEO of GLI Finance and reshaping its business to finance SMEs. During that

time I saw countless smaller finance businesses fail, either because they were taking deposits and suffered a run on their funds or because the banks on whom they were dependent pulled their funding. The banks, pre-crisis, filled this void themselves but now have little appetite for the more specialist lending that requires underwriting skill and experience, and significant capital backing.

At the same time as the banks have pulled back, a new wave of businesses has emerged that, instead of being dependent on banks, have sought funding from investors who acquire the risk/return of the finance

instruments, with the company arranging the transaction taking a fee.

This approach, in its various forms, has generally come under the “peer to peer platform” banner.

At GLI we invest both in the peer-topeer platforms themselves and, through them, in the finance assets they originate. Over the past 12 months we have increasingly seen other institutions wishing to invest through platforms and interest is highest at the “short end”, in invoice and trade finance.

For companies needing to manage their cashflow more effectively, the great news is that there are now a variety of platforms from which it is possible to get invoice and trade finance rapidly, and at a reasonable cost. It is backed by long-term institutional capital that is seeking to allocate billions over time to funding what they see as a very attractive asset class. Within Platform Black, our invoice finance business, and TradeRiver Finance, our trade finance platform, we see businesses funding their cash flow more efficiently every day, and can see there is the institutional appetite to fund far more business in the future.

Geoff Miller (right) is CEO of GLI Finance +44 1481 737600 www.glifinance.com

In focus: How not to lose your business

N With thanks to

ights of disturbed sleep for business owners and directors is often one of the first signs of business distress. The thought of not being able to pay the wages, the mortgage or suppliers stopping supplies is often the first prompt of a call for help.

Who do you call? You need the advice from someone who has years of specialist experience in working with businesses experiencing financial distress.

You might need advice on how to reduce employee or accommodation costs, raise new funds or release cash from existing assets.

Sometimes some of these

informal solutions need to be implemented in conjunction with formal rescue processes.

Employment law, landlord and tenant law, and sources of funding continually evolve and expensive mistakes can be made in each of these areas without the right advice.

Make sure that your adviser is professionally qualified and experienced in these matters.

Bank funding continues to

be difficult to obtain for many. As a consequence other lending sources have continued to develop.

Factoring is becoming more mainstream with greater variations emerging.

Peer-to-peer lending platforms are developing rapidly to allow crowd-funded facilities to be put in place more rapidly than a business’s own bank can often achieve.

Company voluntary arrangements (CVAs), administrations, pre-pack administration and liquidations all have pros and cons as to which is the most appropriate course to follow in each case.

The wrong choice can result in the owners and directors losing their business and livelihood. Make sure you’re advised directly by a licenced insolvency practitioner who has deep experience in implementing these processes.

Michael Chamberlain is founder of Chamberlain and Co 0113 242 0808 www.chamberlain-co.co.uk

A tactical approach to turnaround Whether it’s restricted access to credit, a communication issue with key influential stakeholders or you need restructuring support, I can help you adapt to changing market conditions. Working out of Muckle LLP’s offices in Newcastle upon Tyne, I have a range of clients that include leading financial institutions, insolvency practitioners and national and international corporate clients.

As a partner at the firm, I am the only practising solicitor in the UK who is dually qualified as a certified turnaround professional and take a multi-disciplinary approach to meeting clients’ needs.

I have extensive experience in negotiating and implementing debt restructuring solutions.

As such, I am often called upon for my expertise and ability to provide innovative and practical solutions to complex legal problems.

One high-profile example of this was when I helped resurrect Darlington Football Club. I advised Darlington Football Club Rescue Group on its efforts to save the club and helped the rescue group form a company, Darlington Football Club 1883 Ltd, to buy the business and assets.

The new club appealed to fans to invest in them, raising £335,000 in a fortnight, allowing the company to buy the assets and complete the application to transfer the rights to play football in the Football League. Now the club pays its own way with a clean plan for growth.

If restructuring fails or the opportunity to do so has passed, or insolvency procedures are needed, I can advise on this too.

Andrew Cawkwell is partner and certified turnaround professional, Muckle LLP Andrew.Cawkwell @muckle-llp.com

Business Reporter · September 2014 · 11

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The debate What is the biggest challenge facing companies now?

Brendan McGeever

Tony Groom

Christine Elliott

Steve Parker

Partner Gateley LLP

CEO K2 Business Partners

Chief executive Institute for Turnaround

Partner Opus Restructuring

As the economy continues to recover, the biggest task facing companies is to make their businesses fit for purpose to meet the challenges of a changing market.

As the customer is demanding improved products and more efficiencies (the prize for which is greater opportunities), for some companies a process of change management is needed, and for others it is a turnaround or a transformation. Recognising that need is a significant challenge in itself, but finding the appropriate advice to identify and implement change is also not without difficulty.

In his report to the government in October 2012, Lord Heseltine spoke of the importance of business advice and support to help companies improve and grow, while identifying business failure in taking advice, and a lack of knowledge as to where this support was available from. Those of us involved in helping businesses in the change process need to make our voices heard clearly so that others know help is close to hand.

Many companies have survived the recession at the expense of investing in growth. But to really turn around a company, its business needs to grow but this requires a different mind-set than that needed for surviving.

Growth is about investing in a business, surviving is about cutting costs. There comes a point when a business must look beyond survival and plan for the future if it is to avoid genteel decline.

Growth involves identifying opportunities and having sufficient funds to exploit them. Raising finance, however, requires a company to be investment-ready which is more than just being profitable.

Raising finance for growth should include plans that show the repayment of debt and how investors will get a return.

Companies should think hard about pre-investment valuation and the exit strategy if they want to raise equity finance.

Growing the company is a necessity not an option – once you stop, backsliding is inevitable. The challenge is how to grasp the opportunities while managing uncertainty. For SMEs and mid-market firms, the recession has reset the business landscape for the next decade. Operating in an environment of constant and continued change is the new norm. There are new forms of affordable finance, customer dynamics have shifted, channels to market have multiplied and the strength and depth of the recovery is unclear.

It’s rare to find a business these days without an international dimension, but it can be tricky to decide when and where to invest. Building a relationship with customers is crucial for sustained brand success. It can be a stretch for ownermanagers to run and grow the business simultaneously, so a cost-effective shortcut is using accredited practitioners in step-change.

Viable, successful businesses right across the UK economy are being undermined by a zombie army of the corporate walking dead.

Over 200,000 companies with combined negative equity of more than £70billion are distorting competition, desperately pursuing business at any price and paying no heed to the consequences as they scramble to generate cash to keep creditors at bay.

Unlike in past recessions, the relentless fall in formal insolvencies and a slack restructuring market confirm that, this time round, there has been no cathartic clearing of the commercial forest to encourage the regrowth of healthier businesses.

The reluctance of stakeholders to crystalise losses and the record period of ultra-low interest rates are to blame. But with an uptick in the interest regime, we risk seeing an unprecedented surge in business failures push credit losses through the roof and cause significant business interruption as the integrity of supply chains is threatened.

tony.groom@k2-partners.com www.k2-partners.com

+44 20 3102 7710 www.instituteforturnaround.com

steve.parker@opusllp.com www.opusllp.com

ExpertInsight

www.gateleyuk.com

Expect the unexpected Always arrange extra funding before you need it INDUSTRY VIEW

“D

on’t wait until you’re thirsty before digging your well” is a saying that many business owners would do well to heed at present: by the time a business realises additional liquidity would come in handy, its directors could be shocked to discover the more traditional financial institutions are in no hurry to help.

Even if you don’t need access to extra cash right now it would be smart to get facilities in place – and the current lending option of choice is asset-based finance.

The Asset Based Finance Association has enjoyed the biggest ever quarter, with a record

£18.9billion1 of funding provided to businesses. This is up seven per cent on the last three months and up by 10 per cent from last June’s figure of £17.4billion.

But managers shouldn’t assume that all assetbased lenders will be able to help. Asset based lending comes in many forms, and some providers have surprisingly restricted offerings – they may not have the appropriate arrangement or be willing to take on the specialist types of risks involved in some industries.

At Ultimate Finance we’ve spent the last 18 months developing a number of innovative new products in niche areas such as construction, transport and recruitment. On top of factoring and invoice discounting solutions we also offer trade finance, asset finance, and have developed an online lending platform for companies who want quick and easy access to short-term business loans.

If you want to set up cashflow solutions in anticipation of prosperous or challenging times ahead, then we’re especially well placed to help.

Nick Smith (far left) is group sales director at Ultimate Finance 0800 121 7757 www.ultimatefinance. co.uk

ABFA: www. abfa.org.uk 1

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BRAND PROTECTION

Dark forces

Exclusive interview: Joanne Frearson talks to Interpol’s Michael Ellis about how counterfeiting is affecting all walks of life

I

T MIGHT look like a good, cheap deal on a product – but it may not be the real deal.

If so, what at first looks like a bargain could seriously hurt you – and not just financially.

Counterfeiters will fake anything that they can sell. Interpol has found everything from fake crash helmets that disintegrate when you fall off your bike to fake airbags that don’t go off in a crash and shampoo and body lotion made in factories where the only water supply is a disused toilet.

Fake alcohol caused the deaths of more than 40 people in the Czech Republic through methanol poisoning. When police raided the operation, they found materials that could have killed potentially thousands, and many more could have been seriously injured.

“You and I could go into a shop and buy fake alcohol without knowing it,” Michael Ellis, head of Interpol’s Trafficking in Illicit Goods and Counterfeiting programme tells Business Reporter over coffee at London’s Charing Cross Hotel. “If you are lucky you will go blind. If you are lucky you will get kidney failure. If you are unlucky you will die.” The stories he is telling are shocking, a dark world of counterfeiting far from the light-hearted caper of Only Fools And Horses – while someone might be thinking they’re just making a fast buck, they could be supplying you with a product that could kill.

Anti-counterfeiting and brand protection is

serious business. Interpol has won awards for its work in this area, launching its ‘Turn Back Crime’ campaign in June this year, which is aimed to make people really understand what is happening with their money if they buy counterfeit goods.

He says: “There has got to be more understanding that this is not a Del Boy world.

There are people out there who do not care, they have no concern at all for the impacts further down the chain – all they want is that money. We are trying to say to society, you have an informed choice of what you do with your money. Do you know where your money goes Right: Michael Ellis, who leads Interpol’s anticounterfeiting programme, says it is vital that CEOs lead the charge against fraudsters from the top down

when it goes into that black world? Do you know what it is funding?

“There are hugely organised elements to this criminal activity, which generate huge funds for organised crime gangs and politically subversive groups.

“Illegal money is reinvested into other areas whether that be for political gains, drugs, human trafficking or firearms. There are many cases and examples of that.”

Last year, Interpol conducted about 10

regional operations on a global basis. “We brought together over 70 countries last year who were involved in those in those operations,” says Ellis – seizing around $174million (£105m) of counterfeit products in the process. “To me that means a $174million worth of money that has not fallen into the hands of criminals. On the black economy there is no inward investment, no generation of funds for the government.

It is black money moving around. There are no regulations in that.”

Ellis has been involved in anti-counterfeiting for about 15 years, after a career as a detective with Scotland Yard dealing with serious international organised crime.

“The most unlikely of goods are being counterfeited,” he says. “No one sector is more vulnerable than another. The internet allows for any brand, any commodity to be counterfeited and distributed. The internet provides protection for the criminals to sit behind unseen.

“Heav y machinery is counterfeited, equipment for aircraf t and railways, semiconductors for electrical equipment. There is fake food, wine, alcohol, rice and baby food.

There are fake ball bearings that can go into machinery, even fake firearms and bullets.

“Counterfeiting does not belong to any one country. It does not belong to any one

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Hello, Hello! Why it is good to be out on the streets Opening shots René Carayol

O

government, police force or law enforcement agency. It does not belong to any one brand.

“It is a shared problem which touches all corners of the world. It impacts society and government opportunities for revenue stream.

It impacts on inward investments, it touches the old, it touches the young and I would be naive to say there is any one area that was more affected than another.”

It is the CEO who plays an important role when it comes to companies protecting their brands from counterfeiting. “My experience is if you have support at the board level then that filters down throughout the company,” he says.

“They have to ingrain their staff with anticou nter feit i ng mea su res du r i ng t he manufacturing and supply chain processes.

They have to ingrain in them the need for protection of intellectual property. From a legal perspective that means having a trademark registered and patent-protected.”

Most firms have a multifaceted strategy that involves a robust legal representation and a proactive enforcement approach. Ellis says: “They know their supply chain, where the product should be manufactured, sold and imported. They know what supply routes it should be going through. Then there are lots of things you can do to have a secure supply chain.

“There are lots of things you can do in terms of security features, whether that is an overt feature being a hologram or some sort of coding system, or a covert, hidden feature – something that consumers would not be drawn towards, but that only experts could then see to ascertain if it was a genuine or a fake.

“You will see many companies that have a procedure for monitoring the internet – but, honestly, some of these websites are so professionally constructed that the consumer will really believe they are on a genuine website buying a genuine product.

“It is often not until consumers have parted with their hard-earned money and receive a shoddy item that they will realise they have been conned – or they have a product which they do not realise is counterfeit as it is such a high-quality fake.”

Awareness is vital to be able to “turn back crime”, says Ellis, and make people realise this is not a victimless crime. People are being hurt and killed as a result of these counterfeit goods and money gained from people is then being used to fund illegal activities.

Ellis emphasises the importance of firms having the support of their CEO – only then will they be able to combat it and use a multi-faceted approach to protect their brand.

N A RECENT visit to Soweto, the large and vibrant township adjacent to Johannesburg, we saw some successful Western brands that had been somewhat “Africanised”.

At first, it appeared to jar with everything we thought we knew about brands here in the developed West but, in many respects, the brand experience was being delivered in quite a different but perhaps quite appropriate manner.

Outside one of the shopping malls in Soweto, there were enthusiastic teams of brightly uniformed people encouraging passers-by to purchase Huggies nappies, but they were being sold in single plastic bags. We had never seen Huggies being sold in such a fashion. In the South African market, there are the very affluent and those who are nowhere near as well-to-do. Most of the population just cannot afford to buy Huggies in boxes of 12 or more as we do here.

In Gambia, West Africa, there were many posters for BlackBerrys and Apple iPhones. But everyone still preferred and demanded the “Hello, Hello”, which is how they described the rather old-fashioned, but durable, reliable and cheap Nokia handsets. They were called “Hello, Hellos”, because that’s all the consumers really needed and wanted to do. In a region where there were hardly any fixed-line telephones, the desperate need was to communicate in the most efficient and low-cost manner, and that is old-fashioned speaking and basic texting. They have found smartphones to be too expensive and too complex, and nowhere near as resilient in their far more exacting environments.

Right across Africa, far more of every consumer product is more likely to be seen sold on a market stall, or in a small, brightly-painted kiosk than in a full-service supermarket or department store.

These stallholders are extremely canny operators, and their supply chains match the demands of their regular and loyal customers.

While the surroundings may seem to be detrimental to the outside eye, they are super-efficient and quite profitable for those who know how.

There are many who will ask for two cigarette sticks of Marlboro – this would be an outrageous request in London or New York, but the brand penetration still works in West Africa. The two sticks of a brand like Marlboro may well cost more than a packet of 10 of a local, and perceived as sub-standard, choice.

Furthermore, in most of Africa, big posters and billboards just don’t connect or induce purchasing the way they do in Europe or America. It is so much more about a powerful word-of-mouth recommendation.

A good friend of mine, Larry Drake II, who had worked for both PepsiCo and Coca-Cola, was chief executive of Coca-Cola Nigeria and Central Africa.

He had restructured the delivery routes for Coca-Cola across Nigeria, and recounted a vociferous complaint he had received from an elderly woman who was now no longer getting her deliveries to her street corner kiosk in Lagos. During the dressing-down she personally administered to him, she mentioned in passing that her son was at Harvard Business School and her daughter was at Stanford University.

Larry was of course shocked that this elderly woman and owner of this tiny kiosk could afford such expensive education for her children.

She then shared with Larry that this was just one of the 40-odd kiosks that she ran as part of her distribution network across Lagos.

Larry soon saw to it that her delivery schedules were brought back to where they needed to be and he, like many of us who have travelled across Africa, has learned to view brands and their protection and growth through a very different lens.

For brands in emerging markets, it is far more productive to be out on the streets and in the markets rubbing shoulders with the consumers, rather than conjuring up brand protection strategies in the rarefied head office environments in Europe or America.

Business Reporter · September 2014

14

Brand Protection

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The power of patent protection

IPR crackdown continues to reap rewards

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ExpertInsight

ROTECTING your brand legally can help companies thrive – knowing what type of intellectual property rights a company should have can help protect firms in the marketplace.

Dai Davis, principal at Percy Crow Davis & Co, says: “With intellectual property rights, if you know the rules of the game and can play it better than others, you can enhance the value of your business.

“The first thing to do is identify the potential intellectual property rights you have in your business. Every business will have a trademark or trademarks they wish to protect.

“Technology companies big and small should look at patents to protect their business. Not only because patents can be used to prevent other people from exploiting the invention that you created, but because it is also a defence in case you encroach on someone else’s patent.”

For industrial or manufacturing companies, he says patents “are more about getting the design rights” protected. “If you are a manufacturing or industrial business then a company should look at how to protect their invention.”

In the retail space, “retailers have a shop name, and if they have branded products they might have a name associated with branded

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products. Protecting that name by registration is of great value.”

However, there are certain circumstances where a company might be best not to have a patent, although these are rare.

He says: “Sometimes, if you have a secret process or a secret product, it would be better not to patent the process and keep it secret.

“It would be better to invest money in being the first on the market, rather than obtaining a patent. Again that depends on business to business on industry and invention to invention.”

Generally speaking, though, having a patent or even applying for one can help protect your creation and scare competitors away from encroaching on your brand.

A REPORT released by the European Commission actions to enforce intellectual property rights (IPR) shows authorities in the EU detained almost 36 million items suspected of violating IPR in 2013. Although this was less than previous years, the value of the intercepted goods represented more than € 760million.

Algirdas Semeta, commissioner for Taxation, Customs, Anti-fraud and Audit, says: “Protecting intellectual property rights is not only important for the health and safety of European consumers, but also supports growth and job creation in the EU. Figures in the report showed that counterfeiting affects all products, and that custom authorities do a good job intercepting fakes.”

Clothing was at the top of the list of detained articles, accounting for 12 per cent, followed by

other goods such as insecticides, shoe polish, lamps, glue, batteries, air fresheners, and washing powder, and medicines.

Products for daily use such as body care articles, medicines, toys and electrical household goods accounted for 25.2 per cent of the total number of detained articles.

Postal and courier packages accounted for around 70 per cent of customs interventions in 2013, with 19 per cent of the detentions in postal traffic concerning medicines.

According to the report, the high number of small parcels found in express and postal traffic was most probably the result of internet sales.

China continued to be the main source of fake products, with 66 per cent of all products detained coming from China and 13 per cent coming from Hong Kong.

Other countries, however, were the top source for specific product categories, such as Turkey for perfumes and cosmetics and Egypt for foodstuffs.

Around 90 per cent of all detained goods were either destroyed or a court case was initiated to determine the infringement.

Anti-counterfeiting, the Italian way INDUSTRY VIEW

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he Guardia di Finanza (Italian Financial Police) has recently developed and launched an anti-counterfeiting information system (Sistema Informativo Anti-Contraffazione, or SIAC) with funding from the European Commission and the Italian Ministry of the Interior.

The SIAC is a groundbreaking instrument that marks Italy as a cutting-edge force in international efforts to combat piracy and counterfeiting. The tool has been specifically designed to increase the co-operation between the public sector and brand owners, in order to achieve the common goal of exchanging valuable information in the fight against counterfeiters.

The SIAC is an innovative multimedia platform, offering a range of instruments to those fighting counterfeiting in the public and private spheres.

The system was developed in 2013, but the final version was only launched online and made user-accessible at the beginning of 2014. The features and functions of the system can be seen at http://siac.gdf.it. The tool offers consumers vital information on a daily basis, providing them with updated and reliable data on the various official anti-counterfeiting operations underway in Italy.

The system also helps the different forces fighting piracy to exchange vital information, allowing them to co-ordinate and streamline their actions. The system’s chief, and most important, function is to

co-ordinate the efforts of the public authorities and brand owners suffering from counterfeiting, by assisting them in exchanging information.

The SIAC was specifically developed following the increasing difficulties local authorities were facing while operating in the field. Based on the nature of the operations conducted, it is crucial for the public authorities to have all the necessary information available while they are raiding a target or while they are preparing their actions.

The main users of the application fall into two groups: brand owners and local authorities.

All brand owners wishing to use the SIAC must receive prior accreditation from the Guardia di Finanza, which carefully vets user credentials in order to avoid unlawful accreditations.

Once accredited, the individual companies (or their legal representatives) can upload large volumes of data aimed at helping the efforts of the public authorities working in Italy, including full information on the trademarks owned by the company, authorised distributors and licensees, and distinguishing features of genuine products, possibly accompanied by photographs and specimens.

In addition to making a huge amount of information available to the authorities in Italy, the application also allows companies to monitor anti-counterfeiting activities. Once the seizures have taken place, the local authorities update all the available information on the system, in order for the

interested parties to be fully informed of the ongoing operations.

While this system certainly has a concrete value in the daily operations performed by the Italian authorities and in the following of legal actions conducted by brand owners, it also serves as deterrent for those who consider getting involved in illegal activities.

The involvement of new technologies in the daily operations, the direct actions of the brand owners and the overall increase of awareness in the public media are all aspects that make counterfeiting less profitable for criminal organisations.

Davide Bresner is a lawyer at Rapisardi Intellectual Property www.rapisardi.com

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Two for tea

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Brand Protection

15

Omar Farag (right) and Philip Perera set up PHOM during their university days

By Joanne Frearson

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T’S HARD work creating a brand from scratch, building a name for your company and making sure it is protected. And Omar Farag and Philip

Perera, who co-created the PHOM range of loose leaf teas, are two people who know exactly what this is like.

The pair, who initially set up their business as part of a project at Liverpool’s John Moores University, now have their tea range in Selfridges after winning funding for their idea on Dragons’ Den. Farag tells Business Reporter he has just been to Selfridges with his mum, where she bought some PHOM tea. ”It is really cool seeing something that you have created on the shelf,” he says excitedly.

Brand protection was something Farag and Perera had to learn about along the way, having initially set up their tea range as part of a university project. “We did not know much about intellectual property,” he says. “When we first started we were a student project called the T-Box Company. We just picked the name and started going with it – after we won some competitions and stuff we decided to keep the brand going. But there was also a T-Box café and they got in touch with us in a nice email saying, we have had this name registered since

2007 do you mind considering changing it?”

Although coming up with a new name wasn’t much of an issue, it taught the pair a lot about what they had to do to protect their brand. “Do your research about intellectual property,” is Farag’s advice for those who want to set up their own business, “because for us it could have been a lot worse with the whole T-Box thing.

“If it had been a couple months down the line before they got in touch with us we could have been on the shelf somewhere distributing loads of units. We were quite lucky. You need to do a lot of research to make sure your intellectual property is not clashing with anyone else.”

PHOM was eventually chosen, taken from the first two letters from the duo’s first names. The name is now safely registered at the Intellectual Property Office, and the pair has made sure all of their designs are protected.

Farag says: “We have had the cup and heart [logo] registered for quite a while now. That was the same process, just making sure we were not stepping on anyone’s toes and registering it.

“All of our illustrations are from an artist from New Jersey. We try to keep the illustrations a focal point of the brand and packaging.

Obviously that would be very hard to replicate because it is one artist that has done them for us.”

To protect their brand, Perera and Farag also have help from a specialist intellectual property law firm, which monitors any applications that get published. They have a lso covered t hemselves from the possibility of people trying to sell their brand unscrupulously on the web. Farag says: “We own quite a lot of variations on the domain names, and we are protected in that respect.

“We also have it linked up so we can monitor if other people buy similar domains or place an enquiry for a different domain. We get quite a lot from the Far East.”

Farag believes the best way to handle any potential clashes with intellectual property is to have a calm approach.

He says: “If you react over-aggressively then it causes problems – it has not happened yet. Obviously, we have thought about it and

said what if? I think being quite sensitive to the issue at first and approaching the people kindly [helps]. Obviously if this does not work, then you have to step up.”

The idea to set up a tea company initially came from Perera, whose mother used to own a tea shop in Berlin. Farag says: “That is where Philip’s passion for tea came from, he grew up around it. He suggested it and we thought, you know what? Tea is on the rise. Good and different tea is something people are starting to drink more of. Phil’s mum’s shop was a good point of reference for us to begin with.”

They now have about 20 teas in their range at Selfridges, including fruit and herbal infusions, black, white and green. Their teas come from Sri Lanka, China and even America. Sustainable and ethical sourcing is also important to the pair who make sure their supply chain is part of the Ethical Tea Partnership. “It just makes sure the farmers get a fair part of the industry,” says Farag.

Farag and Perera have built their business up from scratch, taking it from a university project to selling it in a major department store. They have learned about the importance of having the right intellectual property in place, helping PHOM become a very well-protected brand.

Business Reporter · September 2014

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Brand Protection

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Taking a new approach to foil the fake e-traders

I

ExpertInsight

T IS IMPOSSIBLE to put a figure on the amount of money a business could lose due to counterfeiting, experts claim.

After all, unlike legitimate businesses, counterfeiters don’t file accounts or hand in tax returns. But stopping how these criminals process payments on websites is one method that can be used to reduce the losses to businesses.

Bob Barchiesi, president of the International Anti-Counterfeiting Coalition (IACC), says: “Companies have to stay very vigilant, they have to keep up with the ever-changing technologies and continue to do what they do best on the supply side.

“We see a shift from bricks-and-mortar warehouse distribution centres to virtual warehouses – obviously as legitimate e-commerce grows online so has illicit commerce. There are so many copycat websites out there taking real images, copying them and duping the consumer.

“From our perspective, the best way to attack these operations is to shut down these websites’ ability to process payments. When you do this, it is global in nature and does not matter if the bank is hosted in China or the UK. There are no borders and boundaries.”

The IACC is working in partnership with major credit card companies such as MasterCard, Visa and American Express, as well as money transfer companies such as Western Union and MoneyGram to shut down payment apparatuses on websites selling counterfeit goods. “We have probably taken down on our programme 3,800 payment systems and accounts,” says Barchiesi, “and those are linked to probably 200,000 or more websites.

“People involved in these activities normally have thousands of websites which use the same payment mechanisms. Once one payment ability is stopped on one website, the rest follows.”

Cracking down on counterfeit printing supplies

Redefining your online approach By using advanced filters you can protect your brand against fakes in the supply chain

INDUSTRY VIEW

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lobal technology brand Brother is no stranger to the threats of the counterfeit goods market, and has taken steps against fake inks, toners and other print-related supplies.

Counterfeit imaging supplies are big business for fraudsters, believed to be a £1.3billion industry. Brother is part of an alliance of brands that have formed the Imaging Consumables Coalition of Europe, Middle East and Africa (ICCE) – a non-profit making association helping to increase detection and enforcement of ink and toner pirates.

Daisuke Hirota, supplies strategy group manager at Brother International Europe, comments: “The counterfeit supplies market is a problem that’s affecting consumers, official manufacturers and the wider sales channel.

“Many people are being duped into buying fake inks and other supplies.

These often appear to be genuine branded goods and we’ve even recently discovered that some feature a replica warranty label.

“At Brother we have a commitment to providing high-quality products, which have undergone testing to ensure they deliver on performance and safety – so it’s concerning that customers could unwittingly be exposed to counterfeits.

Possible issues include low-quality print, ink and toner leakage, and potential damage to the printer itself.

“We’re working as part of the ICCE to prevent counterfeit product from

INDUSTRY VIEW

C entering the supply chain. It’s also important for the sales channel to be vigilant in making sure its stock comes from a legitimate source.”

Brother has launched a new online tool (see www.brother.com/id for more details) to allow people to check that toners and inks are genuine by verifying the unique ID numbers and holographic effects on the packaging security label. Customers can also download a data matrix reader for their smartphone that scans the security hologram to confirm whether the cartridge is genuine. www.brother.co.uk/supplies/anticounterfeit www.icce.net

ounterfeiting is a big problem.

The damage that occurs from fake products totals billions per year.

“It is serious business”, says Robert Stolk, CEO of Pointer Brand Protection.

Pointer Brand presents a leading online brand-protection solution by using specialised and unique software that is monitoring online markets, social media, webshops and download platforms.

With advanced filters it is able to detect and act against counterfeit offers.

Stolk says: “To successfully tackle these often very professional and skilled frauds, companies need to redefine their online brand protection approach.

Attacking the problem using a one – or maybe two – dimensional approach is no longer sufficient. We believe it is all about connecting the dots.”

Statistics from the HMRC Border Force show that last year more than 21,000 consignments containing IPR infringing goods were detained at the UK border alone. These are impressive numbers but unfortunately only a fraction of what is

coming across. Brand owners who suffer from counterfeit activity naturally want to know where these products are coming from, and also who imported them.

“By identifying, prioritising and getting insights in the total sales channel of a seller, you are able to make a difference and better protect a brand. Our experience is that suppliers and importers rarely advertise online. They know law enforcement and brand owners are watching. It is a closed network and difficult to infiltrate. That’s why we start at the bottom of the supply chain,” says Stolk.

“With our software we successfully detect online sellers that are selling directly to the end-users. Every day we are investigating and gaining intelligence on the total supply chain. We cannot completely stop the import but we believe we can make a difference. By giving the signal to counterfeiters that our clients are on top of it and will take legal action against them, we can reduce the numbers.” www.pointerbp.com

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Brand Protection

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B

ExpertInsight

RANDS are always vying to be loved by the masses. Whether they’re held in high regard or considered cool and cutting edge, staying at the top is competitive business.

Only a few companies can manage this tricky juggling act – brands such as Apple are on top of the cool list, while British Airways is the winner among the super brands. What these companies have in common is a great reputation, a strong set of values – and the ability to be able to protect their brand.

“If you think about the Superbrands it is about the quality of the product proposition,” Stephen Cheliotis (below), CEO of the Centre for Brand Analysis and chairman of the UK Superbrands & CoolBrands Councils, tells Business Reporter.

“It is about being consumer-centric, delivering products and services that are useful, reliable and of good quality that add value to the lives of people or that business.

“It is about reliability. It is about being a brand individuals can trust to deliver on its promises.

It is about the CEO taking ownership of it and developing a business proposition that is truly about the brand.”

W hat a brand owner should be doing to protect themselves, Cheliotis says, is to be “constantly innovating and doing t h i n g s t h at e n able consumers to identify what is real – whether that is

Brand protection the blue-chip way

security marked or whether it is specific products innovation that as yet can’t be copied by the counterfeiters.”

Cheliotis sees the big issue in regards to brand risk is when companies try to talk the talk, but not necessarily walk the walk. He believes the CEO

of a company must be a brand custodian, who ensures the brand is what drives the business across its different functions, rather than being just a marketing proposition. According to Cheliotis, if you get it right in the first place, when a crisis happens you are more likely to have a period

Operating without a trace Kodak combats a multibillion dollar industry INDUSTRY VIEW

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17

n today’s fast-paced, connected world, the counterfeiting industry is one that is growing at an alarming rate. Consumers will go to extraordinary lengths to protect themselves against fraud, particularly when it comes to their bank accounts and identity theft, but the risk to businesses around the world is far greater. The latest estimate from the International Chamber of Commerce indicates that the total global value of counterfeiting and piracy could reach a staggering peak of US$1.7trillion by 2015.

“Counterfeiting and fraud against companies is an issue that often seems to slip below the radar.

High-profile fraud cases have been known to bring companies tumbling down. So why isn’t more being done about safeguarding companies from these

criminal acts? Fraud is one of those activities that businesses suspect they will never be a victim of, but the figures speak for themselves, and British businesses, along with every business around the globe, should be taking more responsibility for safeguarding themselves,” says Bill Simcox, Business Development Director for Kodak Brand Protection Services. “Counterfeiting measures are easily implemented, but a barrier seems to be that businesses assume it’s an insurance policy that they will never need. This perception needs to change.

“Staying one step ahead of the counterfeiters is the challenge, and this is made all the more complex by the fact that every business is different, and faces different risks from different parts of the world.

It’s precisely because of this that highly tailored approaches are absolutely vital. There is no onesize-fits-all solution to combatting fraud, particularly when it is being carried out by highly organised criminal syndicates, working internationally. It is specifically because of this that we at Kodak offer

whereby people will give you the benefit of the doubt or give you an opportunity to resolve whatever that issue is. He says: “The interesting thing is that, if you do it right in a crisis, ironically you can actually build as opposed to destroy your brand, because people recognise you are doing the right thing.

“Everyone knows whether you are a person or a business, things can happen beyond your control.

It is about acting quickly, efficiently, openly, honestly and transparently. The strongest brands have a more thorough risk-assessment framework where they are looking at all of the potential things that could happen.”

However, overall Cheliotis reckons it is getting harder to become a superbrand. Consumers are increasingly savvy with their choices. He says: “Options in terms of alternatives are consistently growing. Consumers not only have more information at their fingertips, but the ability to switch to rival brands is becoming much easier. If brands don’t deliver they will be in trouble quickly.”

highly customised offerings through our brandprotection solutions and services, to fit the unique problems that are affecting different industries and the organisations within them.”

It’s this tailored approach, and a deep understanding of working across many of the world’s most counterfeited markets – including luxury goods, wines and spirits, tobacco, clothing and pharmaceuticals – that has allowed Kodak, through its industry-leading technology, to develop relationships with some of the world’s best known brands.

Kodak’s unrivalled knowhow and expertise in materials science, deposition technologies and digital imaging, developed through years of R&D in the print industry, has provided the business with a global footprint, giving the company unrivalled experience across all market sectors. This presence, in all corners of the globe puts Kodak at the forefront when it comes to protecting companies from counterfeiting, market diversion and the revenue, profit loss and brand-value erosion that comes from such activities.

All Kodak brand protection services, systems and solutions are easily implemented and go a long way in counteracting the counterfeiters and diverters. Highly customisable, these overt, covert and forensically undetectable solutions are applied to packaged goods across many industries.

“The damage that counterfeiting can have on brands is astounding, so investing in measures to counteract it is the sensible approach for any business looking to secure its long-term future,” Simcox concludes.

01923 654510 www.kodak.com/go/brandprotection

18 · Business Reporter · September 2014

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The debate How can companies better protect their brands?

Jeff Bezos A brand for a company is like a reputation for a person.

You earn reputation by trying to do hard things well

Brand Protection Industry view

Business Zone

“

Davide Bresner

Anna Ronkainen

Jeffrey Hardy Director ICC/BASCAP

Director of operations ACG

To better protect their brands, companies should establish a global anti-counterfeiting strategy to specifically target those countries in which manufacturers and importers of counterfeit products are concentrated.

It is vital for brand owners to put a network of representatives in place who are capable of guaranteeing strong relationships with local authorities. These networks guarantee effective co-operation between rights holders and police forces, which is an essential element of any effective brand-protection strategy.

Moreover, any company wishing to do business on a global basis should submit an application to the relevant customs authorities to benefit from the monitoring service they provide – most have sophisticated techniques in place to monitor the importation, exportation and transit of goods.

Raising awareness is also key to any global anti-counterfeiting strategy.

Local information campaigns on the threats posed by counterfeiting can help rights holders to achieve satisfactory results at a reasonable cost.

In many aspects of today’s society, data is becoming increasingly abundant. For brand protection, most companies still rely on technologies that have their roots in the 1970s. In practice this means that countless hours of work are taken up by tedious low-level information retrieval instead of high-level analysis and strategic decision-making. Surely we should expect more in this field, as well in the age of self-driving cars and smartphones?

As one of the pioneers in researchdriven intelligent legal technology, this type of feedback is very familiar to us. Our customers – including a number of market leaders across many industries – appreciate that they can focus on more rewarding work related to the task at hand rather than having to push papers for the sake of trademark search or watching.

Over the coming years, we are likely to see a large number of knowledgeintensive tasks transformed the same way thanks to the growing use of intelligent technology.

A key point in addressing brand protection, counterfeiting and piracy, surrounds the question of where the responsibility lies. In assessing the trends towards brand/IP infringement in, say, the supply chain, companies must deal with significant challenges in detecting and stopping the flow of counterfeited and pirated materials.

The growth of sophisticated logistics networks and the ability to share information through data networks and the internet have dramatically increased the volume of products and information moving around the world and supply chain intermediaries. Intermediary businesses are playing an increasingly critical role in providing services within the supply chain, ultimately connecting producers and consumers.

We will need broad public-private partnerships – and more co-operation and collaboration among brand owners – to limit the abuse of intermediary channels and to stop criminals introducing their harmful, dangerous products into the supply chain.

ACG campaigns against the trade in fakes on behalf of consumers and legitimate businesses, in partnership with government and law enforcement agencies and other rights organisations. We do this through intense lobbying, networking, awareness and training activities, ensuring intellectual property and brand protection remains at the top of the agenda. Our aim is to change society’s perception of counterfeiting as a harmless activity, by exposing the worldwide economic and social cost of intellectual property crime through an intelligence-led approach and “real”, not anecdotal, evidence.

This ultimately ensures that IP cases are accepted for prosecution, and that counterfeiting is recognised as a crime to investigate, leading as it often does to other serious organised crime. Through its intelligence co-ordination, ACG is also helping members raise their profile within the law enforcement community and improving the evidence base for our lobbying and awareness activities.

@ronkaine www.trademarknow.com

icc@iccwbo.org www.iccwbo.org/bascap

01494 449165 www.a-cg.org

Lawyer Rapisardi Intellectual Property

www.rapisardi.com

Chief scientist TrademarkNow

Alison Statham

The future Counter strike: unearthing and

neutralising motivated attacks on reputation

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s every CEO knows, where there’s money there’s malevolence. So just as the business community now realises that the intangible asset of reputation has a tangible effect on corporate valuation, a dark force of detractors emerges motivated to attack reputation for their own gain.

You really can’t be too paranoid. In recent years, businesses have witnessed an increase in malicious and targeted attacks on their reputations. The moment you sense your reputation is being manipulated is the moment the damage has been done. With shorting of shares, rumour mongering and press tip-offs all becoming more common, key stakeholders will look to the company’s leadership to protect their investments and stay clean when the mud starts flying.

So how do you counter-strike a dirty tricks campaign? A head-start can often be gained by

identifying the risks to reputation in advance to mitigate the threat. You should leave no stone unturned. Thinking like an opponent and conducting advance reverse due diligence to identify weakness – an open Facebook page or rumours circulating on a chat room – is a good first step. Following good reputation housekeeping rules will ensure that the information they seek is

in short supply. Then, once an opponent gathers enough compromising material to launch their dirty tricks campaign, a combined team of PRs, lawyers and digital forensic experts can swing into action to name and shame the perpetrators and take countermeasures against them. More often than not unmasking them is enough to deter, but showing the world the attacker’s true colours can ruin their credibility and that of their allegations and can also provide the basis for legal action.

It has never been easier for a rumour – even one without a leg to stand on – to find its way around, and now more than ever, it’s important that businesses take the steps to counter-strike a dirty tricks campaign as soon as they sense it.

Rod Christie-Miller is CEO and partner at Schillings +44 (0)20 7034 9000 enquiries@schillings.co.uk www.schillings.co.uk

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The rise and risk of online business The growth of the digital channel is upon us, says Charlie Abrahams

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s every December passes, new records continue to be set for sales.

E-commerce results for Black Friday (the day after Thanksgiving) in the US as well as the Christmas peak in the UK show how the consumer has moved to the internet for convenience, choice and pricing transparency. In some sectors, such as travel and insurance, the high-street presence has all but completely disappeared and been replaced by a host of comparison sites and online brokers. This is terrific – for both the consumer, as they gain access to far more options and are able to easily find the best offers from the comfort of their living room, and for business, as global reach can be attained quickly and cost-effectively without the huge cost of building a brick-and-mortar presence. This has been true of massive internet properties and smaller, fast-growing brands, such as Cambridge Satchel, which recently came to fame via a series of Google TV adverts.

Risks involved However, at the same time, there are a number of unique aspects of online business that represent risk to both shopper and brand owner – when we buy via the internet, we do not see the product until after we have paid for it. Couple that with the fact that we tend to

What can be done?

make purchasing decisions based on images and descriptions, as well as the appearance of the site, and we have a near-perfect environment for criminal activity since it is possible to build an exact replica of a famous brand’s website and take it to a global market relatively easily, and at very low cost.

Today, £180billion to £350billion of counterfeit goods are purchased annually online, with consumers all over the world tricked by stolen images and logos from genuine websites on a daily basis. In addition, most people have received emails telling

them their bank account password needs to be changed, or some similar ruse, in an attempt to take them to a site where their credentials will be copied, exposing them to the risk of serious financial fraud.

As mobile devices become the online interface of choice, apps are being copied and used as a vector for fraud or the sale of counterfeits. Similarly, social media platforms contain profiles impersonating well-known people and companies often selling cheap, fake versions of popular branded items.

In addition to the ease of committing these crimes on the internet, the anonymity that the platform provides makes it almost impossible for criminal activity to be stopped by government or police intervention. So, while organisations such as the Metropolitan Police IP Crime Unit are battling manfully to reduce the level of this activity carried out

by UK residents and on UK infrastructure, the reality of the internet is that many of the fraudulent sites that our citizens access are either hosted or managed from abroad and so fall into a cross-jurisdictional vacuum that is nearly impossible to breach.

The reality, therefore, is that only brand and rights owners whose logos and products are being illegally copied have the motivation and resources to get fraudulent websites and infringing listings removed on a global basis.

This is hard and unrelenting work, but bears huge fruit in terms of brand equity and bottom line returns.

Charlie Abrahams is senior vice president of worldwide sales at MarkMonitor www.markmonitor. com

How much is your brand worth?

The return on investment of online brand protection

O

nline channels offer businesses an unprecedented opportunity to grow revenues and optimise business models. However, they also present a range of serious and continuously evolving threats that cost companies worldwide billions of pounds in revenue every year.

Counterfeiting and brand theft are crimes that have been given unlimited opportunity online – they affect all industries and all major brands on a global scale.

The watchdog agency BASCAP (Business Action to Stop Counterfeiting And Piracy) puts a $1trillion annual figure on global losses from counterfeiting and piracy, with 2.5 million jobs put at risk.

It is not merely down to phishing scams and fake websites. The problem is vastly compounded by online marketplaces, wherein sites like Alibaba and Taobao include sellers of counterfeit goods. Fraudulent mobile apps and illegitimate social media profiles are two relatively new frontiers, both used to promulgate links to counterfeit products on rogue websites and online marketplaces. Last but not least, the ongoing introduction of 1,400 new generic top-level domains (over 370 already available) is exponentially increasing the risk of rogue domain name registrations using brand names.

While pursuing online brand abuse in all its guises – online trademark infringement, fake websites, brand adulteration, fraudulent selling, and the like – may seem like a very daunting task, there are effective ways to identify and remove such threats. Brand owners should adopt a balanced strategy comprising of proactive and reactive actions, such as executing a strategic domain-name registration policy complemented with comprehensive online monitoring and enforcement. The results can be impressive – in 2013 NetNames removed two billion items from online auction sites and shut down thousands of rogue websites.

The primary concern for most organisations is the financial implications of these threats. These are relatively straightforward to gauge and we are often asked “how do we effectively calculate return on investment (ROI) for brand-protection measures?”

The answer depends on the brand, its products, services and geographical coverage, but it is reasonably straightforward to build ROI calculations that can quantify the value of brand protection.

These are often based on volumetric criteria, such as the value of counterfeit listings removed and the increased legitimate web traffic and sales.

However, brand protection ROI extends beyond those immediately measurable criteria. According to NetNames’ Internet 2020 report, 78 per cent of consumers would shun a brand if they came across a bogus website pertaining to be that brand. Calculating the reputational damage that online infringements can inflict is therefore no easy feat. For instance, how do you quantify brand damage caused by emotive consumer reaction to unforeseen issues with what they believe to be a genuine product? How much of your marketing and development spend is eroded by online infringements? How do you put a value on customer loyalty?

Ultimately, businesses need to ask themselves how much their brand is worth and how much they want to protect the value of that brand. For most, the cost of doing nothing will be a price too big to pay.

Haydn Simpson is product director, brand protection at NetNames www.netnames.com marketing@netnames.com