This month’s comment comes from Alex McCready. Alex McCready is Head of Reputation & Privacy at Vardags, a top divorce and family law firm specialising in high-net-worth and complex cases. Alex helps prominent individuals, families and companies to defend and protect their reputation and privacy.
What are the challenges of selling a business?
Alex: The main challenge when selling a business is ensuring that all positive attributes and USPs are preserved and protected in preparation for, and during, the sale process.
This can be an unexpected challenge, but is achievable with robust planning, together with the use of experts in risk and reputation management.
What are some of the reputational risks and where do they come from?
Alex: Reputation may be an intangible concept that is difficult to quantify, but it will be a vital consideration for anyone buying or selling a business. Not only will a business with a strong positive reputation be perceived as offering greater value, allowing them to charge more for their products or service, they will also attract a higher calibre employee, which in turn will benefit the business.
Their customers are generally more loyal and are more likely to increase spending with that business. Since the market presumes that such businesses will deliver sustained earnings and future growth, they will also have higher price-earnings multiples and market values together with lower capital costs. As for risks, they include:
- The Due Diligence process: This is an obvious point of risk, and companies performing due diligence for potential buyers are far more sophisticated than in the past, with it no longer being a mere tick-box exercise. They will be looking holistically at the target’s reputation using multiple sources, including open source as well as potentially using human intelligence. Their assessment can greatly impact the sale, for example, if they found any information online about the company or its executives that could negatively impact its reputation. I am very much of the opinion that there is merit to companies undertaking their own due diligence exercise on themselves to ensure they are forewarned about any potential issues.
- The Media: Depending on the nature of the sale, it may also attract media interest. Such coverage may be positive in nature, but it can also have negative results. For instance, where there is uncertainty about jobs, the coverage may be less favourable. It is therefore critical to have a communications strategy in place for the sale process and to correct inaccurate reporting when appropriate.
- Cyber-attacks: Once a sale becomes public, third parties will also be aware that this is a critical time for the company. It is therefore not uncommon to see a spike in cyber-attacks during this period, so it is highly advisable to strengthen your defences in advance.
- Parties with their own agenda: Businesses can be particularly vulnerable during a sale process that thrusts them into the spotlight for the first time. This can attract unwanted attention from various sectors or unearth long-forgotten skeletons. It is prudent to identify any such potential threats (for example, a disgruntled former employee or competitor that may wish to derail the sale) and closely monitor them so that you are not taken by surprise.
- Shareholder activism: This behaviour has undoubtedly been on the rise in recent years, and is becoming more sophisticated. There has certainly been a rise in activists using media coverage to further their aims, which presents a tangible risk for corporate reputations. Business owners have faced “financial activism” for many years now, particularly at business-critical junctures, such as a proposed sale. However, we are also seeing a rise of “social activism”, which is activism driven by socially motivated motives. The tactics used are continually evolving, leaving many companies unprepared for handling the emerging situation. It is therefore critical to remain alert to any indication that such a campaign is afoot and to then act swiftly if you identify one.
What needs to be considered before selling a business?
Alex: There are various factors that a business owner should be considering when preparing for a sale. In particular:
- Digital audit: Ask yourself what sort of reputation your business has with its key stakeholders. I often recommend performing a digital audit on your company and key executives before any sale – this allows the business to identify in advance any issues at an early stage and provides the opportunity for them to be corrected, preventing them from surfacing and causing difficulties during a sale. By way of example, the unfortunate nature of the Ollie Robinson saga is not confined to sporting figures– but should serve as a salutary lesson to business owners about the dangers of historic social media posts.
- Litigation: A business owner should expect to receive questions about current and recent litigation; ongoing litigation can affect buyer confidence, as well as negatively impacting warranties and insurance. In today’s post *MeToo era, disclosures may be required in relation to any employee settlement deals, meaning owners should consider whether there are any historic NDAs that may not stand up to scrutiny in the current climate.
- Control your online assets: Page one of Google is often regarded as your online CV. Managing your digital assets requires both time and attention and definitely should not simply be deferred to your “social media” team to manage. Your online reputation needs to be front and centre of your Board’s agenda, since managing these assets is not just about promotion and marketing, but also ensures you are building long-term value for the business and mitigating reputational risk.
What about after selling a business?
Alex: If a sale involves the acquisition and absorption of your business into another, but you remain involved at C-Suite level, then there should be a digital and operational de-brief after the sale.
The use of cyber experts and ‘ethical hackers’ is recommended during this process to stress test your IT and digital security defences, as companies can be vulnerable to cyber-attacks immediately after a sale while transitional systems are in place and teething problems are being ironed out.
It is also important to ensure there is a good cultural ‘fit’ between the two businesses and to correct any misalignment in policies or approach. This is important as cultural clashes can be fodder for journalists who may prey on employees disillusioned or troubled by the change in ownership.
How can a business owner protect their privacy and personal reputation?
Alex: Digital audits should be performed both for the business as well as on key executives. It is regarded as good practice to periodically undertake such audits on the owner as part of a company’s risk processes.
Privacy audits on key executives allow the business to unearth content that may cause reputational embarrassment and will also identify any leaked private information about an executive or their family.
At the simplest level, this could involve changing privacy settings on social media accounts. It can also involve more complicated solutions such as removing private or confidential financial information that can be discovered online. In my experience, the final report is very eye-opening for the owner!
If media scrutiny is likely to be intense, or there is a risk of underhand tactics from third parties such as competitors, we often advise a full review of both the physical and cybersecurity of key executives to identify potential vulnerabilities.
Is personal reputation and business reputation linked?
Alex: This is absolutely the case — a business owner’s reputation is intrinsically linked to their business’ reputation, particularly where they are the founder or it is a family-owned and run business. For these type of businesses, it is a symbiotic relationship that cannot easily be separated.
For example, the late Max Mosley faced a vote of no confidence in relation to heading Formula 1 and was banned from attending the following Grand Prix in Bahrain when the British tabloid press exposed intimate details of his personal life. The scandal was a contributory factor in him eventually standing down as head of Formula 1, an organisation that he had been involved in creating.
Why is personal reputation important to consider?
Alex: To put it simply, any reputational issues related to the CEO can easily impact a business and lower the share price or value of the company, which in turn could scupper a sale or result in a reduced bid.
There are countless examples of how an executive’s behaviour can impact a business’ reputation. For example, when Elon Musk’s behaviour affected Tesla’s reputation or when Bill Gates placed a US$3 billion bid for the private jet company, Signature Aviation a month before publishing his new book, “How to Avoid Climate Change: The Solutions We Have and the Breakthroughs we need”.
Other businesses that have been affected by the words or actions of their CEO include BP in relation to the former CEO, Tony Hayward, whose comments on the 2010 Deepwater Horizon oil spill resulted in a sharp drop in share price. Another example was when Mark Zuckerberg’s poorly received response to the Cambridge Analytica scandal impacted how people viewed the company.
About Alex McCready
Alex McCready is Head of Reputation & Privacy at Vardags. Alex helps prominent individuals, families and companies to defend and protect their reputation and privacy.
About The Lede
This article was originally published in The Lede, Transmission Private’s monthly newsletter that tracks the future of reputation management. Featuring interviews with leading private client advisers from the worlds of law, finance, and accountancy, sign up today to receive the newsletter in your inbox every month.