Pulling Back the Curtain on Brand Valuation: An Interview with David Haigh

David Haigh (Brand Finance Plc., USA)

INTA is approaching the valuation and commercialization of brands as a strategic priority within its 2022–2025 Strategic Plan. The Association is committed to providing brand professionals with a solid understanding of brand valuation and evaluation, to help them become key partners with their finance teams and effectively communicate the value of trademarks to both members of the C-suite and external partners. Most recently, INTA published the 2022 Presidential Task Force Report on IP Reporting for Brands. Valuation methodologies are also covered in its Finance for Non-Finance Legal Professionals Certificate Program.

The latest episode of Brand & New, INTA’s podcast, features a conversation with David Haigh, the founder and CEO of Brand Finance Plc. Mr. Haigh is a pioneer and foremost expert in brand valuation. He has worked in the branded business field, and in brand and intangible asset valuation, since 1991, and, since 1995, has specialized entirely in this area.

Mr. Haigh has represented the British Standards Institution in the working parties responsible for crafting international industry standards and has authored many articles on brand valuation, having been published in numerous marketing and finance newspapers and magazines, including Accountancy Age, the Financial Times, and Marketing Week. He has also lectured on the topic of brand valuation at business schools around the world.

Below is an excerpt from Mr. Haigh’s Brand & New podcast interview. It includes some minor edits to improve readability.

Can you give us some insights into how brand valuation has evolved since you started your consulting firm in the mid-1990s, especially as it relates to the broader concept of intangible assets?
I first got involved in brand valuation in 1992, which was three or four years after it really became popular as the result of a big takeover battle in London. The protagonist who used brand valuation in that battle was Interbrand, the first firm that produced brand valuations. They had a free run until about 1996 when we started.

I joined Interbrand full time in 1995 and worked with them for about 18 months. At that time, we used to go around talking to all the big professional firms, both legal and accounting, to try and explain to them what brand valuation was, why it mattered, what it meant, and what techniques for valuing brands were acceptable. We were generally met with total scorn by both lawyers and accountants. I remember going into two or three of the big accounting firms, and it was humiliating. They’d laugh when you said you did brand valuations.

When I set up Brand Finance in 1996, we were the second firm in the market. There was almost no one else doing it. It was a very undefined, or ill-defined, discipline. What’s changed since then is that very gradually over the last 30 years, there’s been an incremental growth in valuation standards, financial reporting standards, and professional standards.

There have been one or two high points where it accelerated. One of the acceleration points was in 2004 when the International Accounting Standards Board released Financial Reporting Standard Three (IFRS 3). That made it globally required that when you make an acquisition, you must identify value and put specific intangibles into your balance sheet post-acquisition. That was the point where the accounting firms changed their tune. They suddenly realized that this was an important thing. They stopped laughing and jumped in, saying, “we’re experts. We can do this, too.”

In 2010, the International Standards Organization published ISO 10668, which is a formulized approach and a standard for how you’d do a brand valuation. That was a very important moment because it was the point where a reputable branded international organization said brands are very important. They can be valued reliably. Here are the methods.

Since then, it’s been all uphill. There are far more people doing what we do, and more and more companies take it seriously. They’re looking at how to make it more reliable all the time. It’s changed a lot in the last 30 years.

Do you have a view about the appropriate evolution of accounting standards when it comes to intellectual property (IP) and brands?
Back in the 1980s and 1990s, there was a lot of what people call “creative accounting,” where companies would do things like inflating property assets in your balance sheet, misstating pension liabilities, identifying certain assets, valuing them, and revaluing them in order to boost balance sheets. This made the accounting standard-setters very nervous and conservative. They said, “unless you can demonstrate the value of the thing, we’re not keen for you to put it in your balance sheet.” That’s why they banned putting assets in balance sheets unless there has been a transaction. That is why they insist you must put a valuation of an intangible into the balance sheet when you have made an acquisition so you can prove you paid the money.

What they don’t like is when someone’s made a brand or a patent and they say they’ve valued it internally and it’s worth such-and-such. That’s what they won’t allow. The objective is to protect the public and protect investors. You can understand why they’ve done it.

There are several obstacles to putting these values into balance sheets. One is the question of what are the valuation standards? Are they reliable so you could reproduce these standards on a regular basis? Also, are there well-qualified, professionally regulated valuers who are going to do it in a sensible, professional way?

Up to this point, there has not really been a proper profession for the valuation of intangible assets, but that is changing. There have been a lot of moves towards regularizing and regulating those who are allowed to value these assets. For example, in China, no one is allowed to value an intangible asset for an official balance sheet unless they are a qualified member of the Chinese valuation profession. Someone like me couldn’t go into China and value something for a Chinese balance sheet. They have the same rule in India. It’s proliferating because they’re trying to protect balance sheets against dodgy numbers.

You need valuation standards, which are gradually growing, and you need a body of professionals. Accountants and regulators aren’t stupid. They know these are valuable assets. They just struggle to be sure that things that go into the balance sheet make sense.

Now, having said all that, they don’t stop companies from having notes to the accounts, in which you can identify what your intangibles are, give details on their strength, or provide an opinion on their worth, just to help investors better understand what’s in there. Most finance directors can’t be bothered. It’s just too much effort, so they tend to ignore it. In many ways, the fault lies with companies that aren’t taking advantage of the ability to put more information into their wider accounts even though they don’t go into their balance sheet.

Having said all of that again, at Brand Finance, we have been lobbying for this for 30 years. Every year, we produce something called the Global Intangibles Finance Tracker. In it, we look at all the companies in the stock markets. We look at the value of their tangible balance sheets and the value of the companies, and the difference is the intangible value. We then split that intangible value between what’s in the balance sheet because it’s been recognized as the result of an acquisition, and what is just the opinion of the market about the value of that company. That undisclosed intangible number is huge. It’s like 50 percent of all company values worldwide. We have been saying that there should be an obligation on directors to do a valuation of their intangible assets every year with full disclosures and a professional valuer who puts their name on it. The trouble is there is a cost to doing that. Many people don’t want to.

Do you see a role for in-house counsel in promoting improved dynamics on this topic, such that there is a more overall accurate statement about the value of the intangible asset, particularly in brands and trademarks, to senior management? What role can law departments play?
Legal departments have a very big role to play. In the framing of ISO 10668, there was a requirement that there are three legs to a brand valuation. The first leg is to complete an inventory and an audit of all the IP that is being valued. The second leg is looking at market research to understand why the brand is as strong as it is and the reasons you should predict its financial performance to be better. The third is the financial valuation. All three of them lock together to produce a good valuation.

At Brand Finance, we have always done all three. I don’t see how you can do a valuation without the legal analysis, but the thing that’s always surprised me is that the legal profession still to this day is not very robust at flexing its muscles to say you can’t do a brand valuation without a legal analysis. It just doesn’t make any sense.

Listen to the full episode of the Brand & New podcast.

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