Who Watches the Watchers?
We live in an age of contrived argument.
Take for example the Bud Light brouhaha.
Before we do so, we need to consider a couple of questions.
Is Bud Light a bureaucracy?
It undoubtedly has layers of people in administrative roles, removed from the actual hard work of making the beer and distributing it. So there will be a bureaucracy coefficient in play. There is also poor accountability. This is offset by an assumed clear sense of Commander’s Intent: sell more beer at greater margins. As we shall see, they were willing to push decisions down into the organization.
So, yes. It’s a bureaucracy. Maybe it is not an extreme case, but it is one nonetheless. It is much more bureaucratic than the craft brew pub that makes its own scratch down the street.
Anheuser-Busch executives direct their distributors with policies about what they can and cannot do. They negotiate with large retail chains about product placement in stores. We can presume they have tremendous influence over their suppliers, given their scale.
A-B is pretty good at controlling the actions of other people.
What we will see in this story is that they may not be very good at policing themselves. This may be a good lesson about bureaucracy in general.
Who watches the watchers?
Even as bureaucracies are busy dictating to others, bureaucracies may suffer from weak internal governance, ironically. We’re going to discuss a significant potential blind spot.
Let’s get back to the story.
“AB InBev’s market capitalization fell to $107.44 billion through the end of May — down more than $27 billion from the $134.55 billion value the company had on March 31, the day before Mulvaney’s partnership went live, according to Dow Jones Market Data Group.”
They had an advertising campaign go wrong.
“Bud Light’s now-infamous promo with Mulvaney, 26, was posted on April 1, when the trans social media star shared a photo of a personalized beer can the brand sent her to celebrate her “365 Days of Girlhood.”
“The post, which was shared with Mulvaney’s millions of Instagram followers, sparked a nationwide boycott of Bud Light and other beers in Anheuser-Busch’s portfolio, including Budweiser and Michelob Ultra, resulting in six straight weeks of plunging sales.
“Last week, sales of Bud Light, America’s No. 1 beer, dropped 25.7%, according to data obtained by The Post, which followed a 24.6% decline the previous week.”
It is much ado about nothing, potentially. A transgender person with a very specific type of media presence (think Breakfast at Tiffany’s Audrey Hepburn) endorses one of the top beer brands in the country.
Good for her. She’s working hard to build a business.
The Bud Light brand manager wanted to shake up its advertising to target people they hadn’t reached previously (all while assuming that existing sales would stay stable, unaffected by this campaign). Large brands employ armies of so-called influencers to bring their communities into the fold all the time.
Nobody appears to have seen the backlash coming.
The Anheuser-Busch marketing manager, Alissa Heinerscheid (Groton, Harvard, and Wharton), who came up with the idea for this campaign explains her motivation here.
“Heinerscheid claimed she had a 'super clear' mandate to 'to evolve and elevate this incredibly iconic brand.'
“She criticized Bud Light's former marketing strategy as dated and male-focused.
“'We had this hangover, I mean Bud Light had been kind of a brand of fratty, kind of out of touch humor, and it was really important that we had another approach,' the Wharton graduate argued.
“Asked by the host about what she was bringing to the table at Bud Light, Heinerscheid said: 'I had a really clear job to do when I took over Bud Light, and it was 'This brand is in decline, it's been in a decline for a really long time, and if we do not attract young drinkers to come and drink this brand there will be no future for.'”
The reaction to her campaign must have been unanticipated. Who would bring this trouble onto themselves on purpose?
Her language describes her desire to revitalize the brand and to save it from obscurity as its culture (“people like us do things like this”) seems to present a demographic challenge, at least in her mind. She appears to worry that “fratty” men who drink beer and do masculine things (or stupid things or things with other men or traditional things) are a group in terminal decline, either in terms of numbers or spending power.
She said as much in the podcast.
“Days before trolls called for a boycott of Bud Light for its partnership with trans actress Dylan Mulvaney, its marketing vice-president said the brand needed to be more inclusive and ditch its “fratty” reputation – or go out of business.”
“A brand is a product, service or concept that is publicly distinguished from other products, services or concepts so that it can be easily communicated and usually marketed.
“Branding is the process of creating and disseminating the brand name, its qualities and personality. Branding could be applied to the entire corporate identity as well as to individual products and services or concepts.”
A brand is influence. It encompasses trust in the product because it conveys a history upon which the consumer can rely. It doesn’t just mean that “people like us drink beer like this.” If it’s pervasive enough, it can also mean that “people like us think like this and behave like this and dress like this and work like this and live like this.”
And isn’t this true especially when it comes to fast-moving consumer goods sold to a national audience? American mass-scale beer is crap (no offense intended). One bottle of swill is barely distinguishable from another. If you agree, then it’s clear that these goods live and die by their brand strength. For commodities like mainstream beer, people buy the brand. The actual beer is just something that you get in the bargain.
The job of the brand manager is, first and foremost, to protect the integrity of the brand. If the brand was a big pile of cash, then the brand manager would be a fiduciary whose primary role was not to lose one penny. That big pile of cash exists to generate more cash. The bigger the pile, the more cash it can generate, just like the more money you have in the bank, the more interest it can earn.
The secondary job of the brand manager is to make the pile of cash grow larger. If you can figure out a way to add more cash to the pile, well, it just figures that you’ll make more money in interest when you reinvest it. If you can expand the reach of the brand, more people will want to drink your beer.
In other words, the brand is capital.
Extending the analogy, let’s consider a hedge fund. There are (at least) two big ways you can get into trouble as a hedge fund manager.
One, you can fail to generate enough cash with the pile of cash your customers allocate to you. If you are less profitable than the benchmark or some other hedge fund managers in the same market, then the allocators take back the cash they let you manage and give it to someone else to run.
Two, you can lose some of the cash. Let’s say you take a risky bet with the client’s cash. You buy one hundred thousand lottery tickets because you saw a Brian Cranston movie based on a true story. You want to be a hero. But, lo and behold, you don’t win and all the money you spent has disappeared, which means that you have less capital to try to generate the earnings your allocator expects from his capital.
Isn’t this just what Heinerscheid did? When she spent on influencers, not just Mulvaney, wasn’t she purchasing cheap lottery tickets, any one of which could have paid off disproportionately? She certainly couldn’t have known that she was buying a type of reverse lottery ticket in which losing meant not only losing the ticket price, but also destroying some large amount of value.
Hedge funds have risk limits in place to ensure that they don’t do this. They can’t run exposures that breach various metrics. This isn’t bureaucracy; it’s part of the line function to control risk. Without it, the allocators wouldn’t fund you in the first place.
In this analogy, Heinerscheid is the Gabe Plotkin of brand marketing. (He was a hedge fund manager who shorted GameStop stock only to encounter a short squeeze when an army of retail traders took him on. He did okay in the end.) She thought she was doing something harmless in order to generate some value on the margin, only to get run over by some day-traders online trolls.
Why didn’t anyone at Anheuser-Busch say, hey, this smells like politics? There’s no upside in antagonizing half the country.
Fund managers talk all day, every day, about the tradeoff between risk and reward. She misjudged the risk. There is no way she thought it was possible for the market cap and sales to collapse the way they did, unless she was committing career hara-kiri.
What if she also interpreted the reward differently than the Commander’s Intent would suggest?
What if the reward she was playing for was not increased beer sales but something that was in her personal interest or the interests of those with whom she was aligned?
In that case, she would be like a fund manager who used the money of a pension fund client to pay for personal expenses or to prop up a failing private company.
What if she tried to leverage the brand capital to advance a political agenda focused on diversity and tolerance? Wouldn’t that be exactly the same thing as a hedge fund manager who used client funds to prop up his brother-in-law’s struggling crypto exchange?
It’s an open question. We’ll never know the answer unless she tells us in some future confession.
Whatever her motivation, the view of a vocal segment of the brand’s clients was that she did use the brand’s capital to advance a specific political agenda. Call it social justice or wokeism or intersectionality or whatever you like. This was the risk: the situation would become distorted, public, and uncontrollable. It became realized risk immediately. Here’s Vivek Ramaswamy with a comment representative of the critics:
“‘This, to me, is a case of a company that's clearly not following its financial self-interest,’ Ramaswamy said. ‘Sometimes you could make an argument that a company does something totally woke because that's what its customer base wants to see. Oftentimes, that's even debatable. In the case of Bud Light, that's just wrong.’“
With brands, perception is reality.
In the absence of any commentary that she was motivated by politics, maybe we should give her the benefit of the doubt.
Perhaps the simplest explanation is the best one. Mainstream beer brands are suffering as other products (cannabis, local craft beer, hard seltzers, etc.) steal their thunder. Heinerscheid had a Canute-like task: to try to persuade customers (with none of whom she had anything in common or for whom she evinced the slightest empathy) to stick with the mothership. Maybe she was just incompetent.
Heinerscheid was soon disappeared on a “leave of absence.”
“However, a current regional head of marketing told the Daily Caller that Heinerscheid and Blake are actually “gone gone.”
“The source, who was granted anonymity for discussing internal company policy, added: “To my understanding, if we publicly announced the word ‘fire,’ it opens up the potential for them to sue us. That’s why we said leave of absence.””
Two words, Mr. President: “plausible deniability.”
Given the scale of the damage to the brand(s) and the market capitalization, this should have led to widespread turnover up the chain of command. It did not. There was little accountability, beyond the bare minimum, as we would predict.
We can say that, whatever her motivation, brand capital was destroyed on her watch, by her actions. There were no effective guardrails to prevent this from happening. Here, there was no bureaucracy governing the bureaucrats. The effects are the same regardless of motive.
How does this connect to bureaucracy?
Bureaucracies have institutional capital, too. They accumulate trust and reputation which they monetize as influence and impact. We care what the U.S. Department of Defense has to say or what the Federal Reserve does because these institutions with their experts and their processes have history, impact, and credibility. The funny thing about trust is that it takes “a long time to build and an instant to vanish.” Bureaucracies may be vulnerable to impairment of their institutional capital, either by motivated actors who would exploit it or through poor guardianship.
Bureaucracies, particularly ones in the public sector, may not build sufficient safeguards against such misuse.
One irony of bureaucracy is that even as it seeks to assert control or influence over others it may pay too little attention to its own governance. It suffers from blind spots. It may be too arrogant to even acknowledge the potential existence of such blind spots.
A corollary implication here is that individuals who would use institutions to advance their own interests and causes are more likely to target the most influential entities, the ones with the greatest amount of institutional capital. Why do you rob banks? Because that’s where the money is.
The effects of this self-regulatory attention deficit are compounded by the phenomenon in which there is little or no accountability in a bureaucracy. It may be easier to exploit a bureaucracy’s institutional capital than to do so in other forms of organization. This is more dangerous if bureaucracy is increasing in its reach with the breakdown of civic virtue and trust in the West. Since we are in the prediction business, we should expect to see more of these kerfuffles in the future. Much more.