head of the Confederation of British Industry (CBI)’s annual meeting this Wednesday, the group is reportedly now seeking £3 million from members to avoid financial collapse. At the same time, it seemingly remains in discussions with manufacturing trade group Make UK around future collaboration – including a potential merger.
This all comes after a challenging year for the CBI, including allegations of sexual misconduct, and a toxic workplace environment, by current and former employees.
The potential Make UK tie-up raises interesting questions around managing reputational risks in corporate transactions, especially where brand and name recognition represent an important part of the attraction to prospective partners or purchasers.
Prior to their troubles, the CBI’s public profile was prominent and its views shared widely. In particular, it had a strong public voice in the aftermath of the Brexit vote, and subsequent national debate on the shape of the UK’s relationship with the EU. However, after public allegations were made earlier this year, the CBI has experienced numerous troubles, both reputational and, reportedly, financial, as members cancelled or suspended their memberships.
How, then, would Make UK assess and manage the potential contagion risk to its brand, if a partnership or merger materialises?
Firstly, Make UK will likely want to carry out extensive due diligence – lifting up the CBI’s corporate ‘bonnet’ and taking a look at what sorts of issues may be lurking. Are claims being made by current or former employees, arising out of prior inappropriate behaviour? Are individuals associated with or employed by the CBI likely to face further investigation? Is there substance behind such allegations, and have they been taken seriously by the organisation? What steps are being taken to ensure similar issues do not arise again (such as changes to governance?) In the corporate world of mergers & acquisitions, it is key for potential partners or purchasers to understand these risks as early as possible, and it is likely that Make UK will do that here.
Secondly, once risks have been identified and investigated, what should Make UK’s plan be to tackle any negative PR risks to them as a result of engaging with the CBI? One key challenge will be how they explain to key stakeholders – employees, members, suppliers – the potential benefits of any arrangements. Will the benefits outweigh the possible risks to Make UK’s own brand?
Another key challenge would be assessing whether a re-brand of any merged entity would be effective. Or would people be able to join the dots, rendering any re-brand pointless or unhelpful? We just recently saw Twitter rebrand to ‘X’ – will that re-brand do anything to draw back users when the brand is still heavily linked to bad press surrounding Musk’s takeover and changes to the business? It’s perhaps still too early say, but an interesting question to consider in the case of both X and the CBI.
Thirdly, could a deal be structured so that legal liability associated with the CBI stays ringfenced, enabling Make UK to absorb the ‘positive’ elements without taking on additional risks? Whilst these sorts of structuring considerations are commonplace in corporate M&A transactions, there would likely be questions about how effective any solutions might be in isolating or eliminating related reputational issues.
The corporate world provides interesting examples of how reputational issues can be navigated (or not).
Corporate history suggests some reputational toxicity is fatal. The Weinstein Company, for example – previously a successful independent film studio – was unable to extricate itself from financial and reputational damage related to its association with its eponymous founder, and the serious allegations against him. Note though that the company’s bankruptcy brought opportunity, with Lantern Entertainment acquiring the majority of its assets and film library in 2018, seemingly bypassing negative association with Weinstein himself.
It will certainly be interesting to see how talks develop between the CBI and Make UK, especially as the CBI’s financial troubles mean that a solution seems to be required sooner rather than later.
The bottom line is this – yes, a merger could work. But any deal is going to require very careful balancing on both sides. With the amount of public scrutiny the CBI and a potential deal are under, negotiations could very well collapse in the event of a misstep.
Hamish Perry, Partner, and Mike Barrington, Senior Associate are in the corporate team of law firm Charles Russell Speechlys