Can SAC Leave Its Bad Name Behind?
Scandals stick to corporate names like gum on the soles of shoe. Sure, you can scrape it off, but sometimes it’s easier to simply change footwear. That seems to be the conclusion of Stephen A. Cohen, whose initials grace the embattled hedge fund known as SAC Capital Advisors LP. Thanks to a massive insider-trading scandal, never mind a pending civil suit filed by the Securities and Exchange Commission, Cohen and the upper management at SAC have decided to change their fund’s name.
They’re hardly the first to do so. Businesses change names all the time, though the motives for doing so vary immensely. So before Cohen jumps the gun, a little history might help: Corporate name changes can yield a big payoff, but they can also terribly, horribly awry.
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Name changes are occasionally driven by scandal and bad press, but many more have been earnest attempts to more accurately capture the actual products and services of the underlying firm.
This was especially common in the 1960s through the 1980s, when many longstanding firms diversified into areas well outside their original focus. This meant dropping the names of specific products with something a bit more vague and all-encompassing.
For example, after the R. J. Reynolds Tobacco Corp. acquired such iconic brands as My-T-Fine Pudding, College Inn Soups and Vermont Maid Syrup, it dropped “Tobacco” from its corporate name. Likewise, Armstrong Cork Co., which had long ago diversified into new lines of business, belatedly became Armstrong World Industries in 1980. The same was true of the fusty Pacific Tin Consolidated Corp., which became much hipper, space-age Zemex Corporation.
Companies that want to run away from their past have also done this by simply substituting an acronym for the embarrassing, antiquated or unduly narrow. The American District Telegraph Company, founded in 1874, had long been in the security business before it was reborn as the instantly recognizable ADT in the 1980s. Likewise, the Corn Product Corporation became CPC; Radio Corporation of America became RCA; and General Aniline and Film became GAF.
More relevant for Cohen is the fate of the U.S. Radium Corporation. It was a company with a far bigger image problem than SAC, thanks to the fact that some of its workers died from radiation poisoning in the 1920s. After decades of bad press, it became USR Industries in 1980, which was sufficiently ambiguous but true to the firm’s primary focus.
Switching to an acronym, of course, isn't an option for SAC. And given the opprobrium attached to Cohen, using the family name may not be the best idea (even as the firm becomes a so-called family office). And it may not be a good idea in general, since it links the corporation’s fate a bit too definitively with a single person.
Take, for instance, the story of dictatorial businessman Harry Figgie. After he took over the Automatic Sprinkler Corporation in the 1960s, he named it A-T-O after its stock ticker symbol. The company flourished. Then the board renamed it Figgie International in 1981. For a while, the company did well, but after Harry Figgie stepped down in 1994, his eponymous conglomerate went to pieces.
That leaves another, time-honored strategy for changing corporate names. Simply make something up that sounds vaguely positive, inoffensive and upbeat. Note to SAC: you’ll need a dictionary for this one because it’s customary to pillage some Latin or Greek roots.
Dutch Boy Inc., for example, shed its associations with lead paint and became the Artra Group. Bliss & Laughlin Industries Inc. became the Axia Group. International Harvester became Navistar. Tobacco giant Philip Morris, fresh from a huge settlement over tobacco litigation, changed its name to Altria. GMAC (General Motors Acceptance Corporation) became the friendly-sounding Ally Bank. (Yes, a disproportionate number of name changes are to “A” words.)
But be careful. This is really easy to mess up. When UAL (the parent of United Airlines) changed its names to Allegis (a portmanteau of “allegiance” and “aegis”) the reaction was overwhelmingly negative. Likewise, when Standard Oil of New Jersey cast around for a name without the Rockefeller baggage, one it came up with was Enco. Unfortunately, this was the phonetic approximation in Japanese of a word meaning “stalled car.” Eventually, they went with Exxon, which turned out pretty well.
And when HNG/InterNorth, a gas company, wanted a sleeker, cooler name, it opted for Enteron. Shareholders helpfully pointed out that a gas company might not want to use the medical name for the human alimentary canal, which spans the mouth to the small intestines. Thankfully, they came up with something a bit more concise and inoffensive: Enron.
(Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to the Ticker. Follow him on Twitter at @smihm.)
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