The Relationship between Brand and Reputation

I used to intern at Merrill Lynch for the first two summers of my college life. Now, before the recession, Merrill Lynch was an immense investment banking firm on par with peers like Goldman Sachs and Morgan Stanley. But Merrill Lynch, in its competition with them, overextended into mortgage backed securities and other such dangerous derivatives. And since it had done so, it was hit hard by the financial crisis of 2007-08. The same crisis that forced Bear Stearns and Lehman Brothers out of business was the one to bring the esteemed and storied Merrill Lynch down to its knees. In the end, in the middle of September of 2008, Merrill Lynch was forced to stomach and accept a takeover offer of $50 billion from lender Bank of America. Bank of America was on the hunt for good deals during the meltdown and bought Countrywide Financial first. When it heard of Merrill Lynch's troubles, the deal was almost too good to pass up. What Bank of America was looking for was the hefty fees and profits provided by Merrill Lynch's brokerage house - in essence Merrill Lynch became nothing more than Bank of America's "wealth management" arm. After the buyout was completed, Bank of America pared or wound down Merrill Lynch's more riskier ventures, the same ventures that defined it as a market leader for generations (like Merrill Lynch Europe or certain aspects of Merrill Lynch investment banking) and directed ML to concentrate its efforts on expanding the domestic brokerage firm. Because of the steady cash and profits provided by Merrill Lynch Wealth Management, it has largely boosted Bank of America's bottom line while BofA has had to deal with losses stemming from subprime mortgages and legal issues.

That is just the back story. There were consequences of Merrill Lynch's overreaching of course, some of them being Merrill Lynch brokers, a lot of the high powered and influential ones, deciding that Merrill Lynch was another glob in a corporate behemoth. Before the merger, brokers had immense power within the firm, indeed, the firm's management catered to them. Now that BofA's corporate management came and sent out financial targets and goals all over the place, essentially telling the brokers what to do, these same brokers wanted nothing more to do with the firm. The financial advisers left in the wake of the merger for other wealth management firms such as Morgan Stanley and UBS (who answered to no higher power). The same can be said of the clients, but to a lesser degree - reports of overall client dissatisfaction quickly grew after the merger and the company had to work around the clock to assauge their clients that nothing would change. But of course, changes did happen.

Before the crisis, Merrill Lynch had a huge brand name and important reputation. These days, rivals and peers look at it as if it has been relegated to the minor leagues once it became acquired. To some degree, I have read that some brokers still with the firm feel that way. They want to compete with the likes of Goldman Sachs, but feel Bank of America stifles them, according to news reports. As a result, and unintended consequence, many people feel less inclined to work for Merrill Lynch, and the brightest minds insist on working at GS or hedge funds.

This just shows how brand name and reputation are intertwined. I spoke about Merrill Lynch but Apple is another prime example of how this works. In several reports and studies, Apple has repeatedly come out on top as the single most valuable corporate brand in the world (I think the value of the brand name itself approached $50 billion). Apple has staked its reputation in the power of its brand and its ability to attract and draw consumers in like moths to a flame. Year after year, it has done it again and again, beating sales estimates of its iPhones and iPads, and in turn, of its Macbooks as well. Without its brand name, Apple couldn't price its products as high as it does. Thus, we can see that the relationship between brand name and reputation is deeply intertwined. Corporations have no choice but to see that their brand and reputation are pristine and valued as highly as possible. That's why they go to great lengths to settle legal issues and court cases before it gets out of hand and public opinion turns negative.