Governing whims

whim blog bw

Our CEO likes F1

‘Grübel was planning to get in with Sauber[1]’ was how impeccable veteran F1 journalist Roger Benoit broke the news that UBS Group CEO Oswald Grübel had been planning once again to sponsor Sauber F1 in Swiss magazine Blick. Following a few days after the announcement of UBS sponsorship of Formula 1, the timing couldn’t have been much worse.

The return of UBS to the international stage of sponsorship was meant to signal a turning of the corner from the black days of the sub-prime crisis. It followed closely on the heels of the new advertising campaign, We will not rest, which positions UBS modestly as a part of the support team that even the highest achievers need.

The impact of its losses on the UBS psyche are difficult to imagine. Having played the more dominant role globally, it found itself playing number two to Credit Suisse on the home front. UBS sponsorship had always carried the same hallmark as the brand: refined and intelligent. A sponsorship department of around 80, an enormous team, was whittled down to a team of one.

Grübel’s fondness for F1 is no secret. Whilst at Credit Suisse, he led the powerful Private Banking division, and had stepped in, in winter 2000, to save the Sauber team, in a deal which made Credit Suisse both team sponsor and 60% shareholder, with an annual commitment, as reported by Blick, of CHF25m. After Grübel’s 2007 move to UBS, Credit Suisse exited the deal, although Grübel himself, a personal friend of Peter Sauber, had remained on the Board at Sauber.

The Blick story is bad news for everyone.

For all Grübel’s assertions that the sponsorship will strengthen the UBS brand globally and provide attractive opportunities for customer hospitality, Blick’s disclosure talks squarely to CEO whim. Whatever rationalisation is offered – and F1 absolutely ticks the two boxes of media and hospitality – it’s obvious that Grübel sponsored F1 because Grübel likes F1.


Corporate governance?

You can imagine the sort of questions appearing on the Blick website – hauntingly familiar to a UK audience in particular: but for a sponsorship professional, there’s a whole other set.

Despite the familiar dual Board structure standard to corporate governance models, the Blick article makes it very clear that Grübel was only narrowly foiled in his attempt to sponsor Sauber.

It can easily be argued that the CHF50m investment Blick references is a small amount for a company which posted a pre-tax profit of CHF 2,614m in the second quarter of 2010. The UBS Optimus Foundation, on the other hand, has taken 11 years to disburse CHF 79m, against which the F1 investment seems considerably more sizeable. Either way, if the Group CEO can operate with such little input from either Board on this matter, where does that leave UBS corporate governance at a time when the governance of the financial services sector is under regulatory scrutiny?

The 2009 UBS Annual Report openly acknowledges the link between reputational damage and client attrition – and the subsequent negative impact on financial performance. ‘Restoring our reputation is essential to maintaining our relationships with clients, investors, regulators and the general public, as well as with our employees. It is critical to the success of our strategic plans.’

The OECD’s Corporate Governance Principles do not explicitly mention reputation or brand, let alone sponsorship: they talk only of risk. The interface between sponsorship and organisational risk is not large, but it has been shown to exist, and most visibly at the level of the Chairman’s whim. Although there are far weightier issues for the agenda, Boards remove themselves from major sponsorships at their own risk – and the business case process is a fundamental supervisory tool.


The business case?

On its website, UBS claims to have evaluated the association comprehensively, and points to the business value of hospitality and brand awareness in the Middle East, LatAm and Asia. Let’s consider these points.

UBS Wealth Management defines itself as serving audiences with investable assets ranging from CHF250K to CHF50m, an audience which the Merrill Lynch 2009 World Wealth Report shows is still predominantly US based – and not certainly not mass[2]. For the majority of potential Wealth Management clients, a free ticket and hospitality at F1 are not that compelling. And although Finance Asia claims that AsiaPac is likely to overtake North America with respect to HNWI assets by 2013, even basic modeling will show that the total numbers fail to add up. The highly personal dynamics of private banking generally means that hospitality, as good as it gets with the Paddock Club, simply can’t be packaged in that way, for that audience. The audience of Asset Management, on the other hand, is primarily institutional, where lavish hospitality has little role to play – where it’s not prohibited under compliance rules.

It’s also hard to see a way the sponsorship of Formula 1 can be integrated with the new UBS advertising campaign. UBS has no heritage in F1, it has had no role to play in the growth of the sport, and it has no drivers to embody ambitious restlessness.

Chairman’s whim is a great phrase because it scapegoats the Chairman. The reality is, whims are not the Chairman’s prerogative. Although Board scrutiny is often the kiss of death for innovation and creativity – especially in companies where innovation and creativity are not valued – sponsorship, and especially major sponsorship of this scale, needs to be better understood by the Board.

Given the importance of restoring its reputation, one would expect the UBS Board to have required clear answers to some simple questions: how do we know our clients watch or like Formula 1? Where is the evidence that sponsorship of Formula 1 will support and not hinder the restoration of our reputation? How will F1 sponsorship enhance our advertising? What are the risks and how do we mitigate them? And most critically, where is a balanced and strategic assessment of alternative ways to achieve the same objectives?

From a management consultancy perspective, much of Governance is ultimately about diligent decision-making – but strategic decision-making is impossible without a set of alternatives. For the UBS Board to make its decision based on a single option – and Sauber and Formula 1 count here as a single option – indicates less than perfect Governance.

Ironically, Grübel’s proposal might well have fared better in a properly structured business case process. A relationship with Sauber would have played the national card for a Swiss retail audience; it could have become a proof-point for ‘We will not rest’, complete with actual content; with access to the Team and drivers, it would have offered far more exclusive levels of race day client experience for clients in AsiaPac and around the world.

I don’t know who to cheer for.


[1] Grübel wollte bei Sauber einsteigen

[2] Merrill Lynch’s 2009 World Wealth Report estimates the total global population of US dollar millionaires (ie total assets excluding primary residence) to stand at just under 10 million