Truth, Trust & Transparency

I don't know about you, but for me, last week's blinding glimpse of the obvious came, oddly enough, from a quote reported over a year ago during the initial tremors of the current crisis. I confess this morsel had escaped me until I read it on MIT's Simon Johnson's baselinemanifesto.com. I had just digested his article, The Quiet Coup, in the current issue of Atlantic Monthly, and if you haven't read the latter, I suggest taking the earliest opportunity to do so.

The quote? "We have a huge brand with Treasury."

Thus, apparently, did Lehman's Dick Fuld email his legal director after having dinner with then Treasury Secretary Henry Paulson in April of last year. Let's leave aside for the moment the temptation of exactly how "huge" the Lehman brand eventually turned out to be. The matter I want to get to is the idea of brand and the Three Ts -- truth, trust, transparency -- which are going to be at the very core of the new consumer paradigm once the winds of chaos have begun to subside.

Why?

The first reason is that truth remains elusive. But what is undeniable is that as of this writing, almost eight months after the initial debacle, those entities deemed "too big to fail" have managed to evade the responsibility of recognizing -- i.e., staring at the true visage of -- the potential extent of their losses. We all know why. To do so -- even under the favorable, one might say artificial, circumstances of the current stress tests -- reveals many to be insolvent. But this continued devaluation of truth in the present cannot help but raise its valuation, at least for brands who are dependent on actual people, once reality arrives.

Of course, failure to face the facts impacts public trust. And here, let me connect another dot. On April 21, SIGTARP released its quarterly report to Congress. Now, who is SIGTARP and why should you care? SIGTARP is the Office of the Special Inspector General for the Troubled Asset Relief Program, as established by the Emergency Economic Stabilization Act of 2008.

These days, everyone has an agenda. SIGTARP's is protecting the taxpayer from fraud by the huge powers currently negotiating largely out of sight and in their own interests. Among the report's findings is the frankly stunning information that Treasury continues to resist SIGTARP's recommendation that "all TARP recipients be required to ... a) account for the use of TARP funds, b) set up internal controls to comply with such accounting, and c) report periodically to Treasury on the results, with appropriate sworn certifications."

The report also warns that PPIP, the public-private partnership, is "inherently vulnerable to fraud, waste, and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering." (The full PDF is avalaible online.) Collusion? Money laundering? You can begin to see why Johnson, who spent years in the IMF, likens our situation to those he has faced with the Russias and Argentinas of the world.

All of which brings me to my final point. Transparency will arrive. It has to. When young couples must not only pony up 20% of the purchase price -- a good thing -- for the down payment for a home, but once again disclose in good faith the full details of their financial lives in the name of reduction of risk, I suggest they will require something similar of any core brand in their lives.

We're already seeing an approximation of this as discrepancies in consumer standards have replicated the China "baby formula" story in other industries, producing recalls in the home furnishings industry. But transparency is really a much bigger issue.

Brand transparency doesn't obviate having an ironic tone or even a brand persona like that projected by AXE. But it does require that the essential truth of a brand be consistent with real life and not some risk-discounted fantasy scenario, life as it is lived by real people inhabiting a real world. And the longer the current downturn lasts, the greater will be the punishment meted out to violations of the public trust -- whether by human beings or by brands.

Who is your brand huge with? Are you sure?

Truth, trust, transparency. Coming soon.

The New Normal

Interesting data point from Gallup on the new normal. I realize that this represents a point in time as we traverse this secular shift, but it's worth watching going forward. I think 1/3 is a fairly significant number when one of the known unknowns is how far we are along the deleveraging timeline here on the 28th of April.

I continue to believe this redounds ultimately to NCT's benefit and I love where we are with simple pleasures.

However, I also believe this raises some serious issues for those who continue to believe that "consumers have the money, they just need to be given permission to spend it." There's a contradiction in there, if you think about it for a minute.

I'll elaborate at some length later on, but retailers are going to have to get outside their comfort zone as we "navigate the uncharted waters" to use the current cliché.