Ronald McDonald: A Marketing Conundrum

How often do advocates for children’s health issues find themselves in complete agreement with advertising executives on Madison Avenue?

It certainly didn’t occur during the 1990s, when a coalition of the American Cancer Society, the American Heart Association, and the American Lung Association petitioned Congress to ban RJ Reynolds from using its animated Joe Camel character to sell cigarettes. They bitterly complained that the advertising campaign represented a poorly disguised attempt to “hook” children on smoking.

Nor did it occur in 2007, when the Campaign for a Commercial-Free Childhood asked the Division of Advertising Practices of the Federal Trade Commission to investigate the marketing tie-ins of violent films with television shows, food promotions, and toys. They charged that such advertising campaigns, when linked with PG-13 rated films like The Transformers, exposed children to psychologically harmful levels of violence.

Last week, another coalition of advocates criticized a major American corporation for conducting a marketing campaign that primarily targets children. This time, however, many advertising executives actually echoed their concerns.

You Deserve A Break Today!

The American corporation that was criticized last week was McDonald’s, the icon of fast food. The attack was neither new nor unexpected; in fact, the firm has been the target of attacks by children’s health advocates throughout its history. As recently as last year, for instance, it failed to prevent Santa Clara County in California from outlawing the giveaway of toys with Happy Meals.

Last week, though, the focus of such attacks shifted from the franchiser’s food products to its chief spokesperson. Or, more specifically, to its chief spokes-clown. More than 550 advocates for children’s health concerns jointly issued a public letter that recommended the immediate retirement of the mascot Ronald McDonald. It was accompanied by a shareholder proposal at the McDonald’s annual investor meeting, one presented by a group of nuns, that recommended that the firm issue public reports on its corporate social responsibility regarding the spread of childhood obesity.

CEO Jim Skinner was feisty and combative at the shareholder meeting, declaring that “Ronald McDonald is going nowhere!” And yet a number of marketing executives, individuals who can usually be counted on to praise the advertising campaigns of American multinational corporations, are starting to question the value proposition of Ronald as well.

Yo quiero, Taco Bell!

These skeptical marketing experts may have a point; after all, the fast food industry has long promoted corporate mascots of questionable value. The latest reincarnation of Burger King’s royal mascot, for instance, has recently been called “blatantly offensive” by mental health advocacy groups and other social welfare organizations. And Gidget, the feisty spokes-dog Chihuahua for Taco Bell, was retired after a number of cultural advocacy groups complained about its perpetuation of ethnic stereotypes.

But why retire Ronald McDonald? One ad agency executive notes that, like Gidget, Ronald simply fails to inspire prospective customers to purchase food products. “It’s really remarkable how often I saw the word ‘creepy’ in the survey comments (of focus groups),” explains Ace Metrix Vice President Jack McKee.

Others note that American society may have evolved beyond the stage where a 1960s-era clown and his cronies can appeal to contemporary parents and their children. After all, although Ronald himself still inhabits television commercials, his friends Mayor McCheese, Grimace, and the Hamburglar have all been retired from view, along with their McDonaldland fantasy world.

Product vs. Pitchman

Even though CEO Jim Skinner has chosen to support his clownish mascot, it is indeed self-evident that the images of his retail environment and his corporate pitch man — though once well aligned — are now growing increasingly discordant. The food itself is becoming more healthy and more fashionable, served within restaurants that are rapidly evolving into coffee bars with flat screen televisions, lounge furniture, and complimentary wi-fi service.

But Ronald himself has not changed at all since 1966, when his image was tweaked to remove the “paper cup nose” and “food tray hat” that accompanied Willard Scott’s original version. The contemporary mascot wears a plastic neon-emblazoned clown suit of red and yellow, reminiscent of the original decor of the restaurant signs and benches.

It is understandable, perhaps, that McDonald’s is reluctant to retire a corporate mascot that remains one of the most recognizable characters in the world. Nevertheless, considering the dissonance between the image of the firm’s evolving retail environment and the image of its primary marketing spokesperson, it may be time for the organization to modernize Ronald’s image.

After all, KFC successfully transformed the image of its deceased founder Colonel Harland Sanders into a modern animated figure, and Quaker Oats (and its predecessor firms) transitioned its purportedly stereotypical version of Aunt Jemima into a contemporary spokesperson as well. If these firms were able to modernize the images of their corporate mascots to make them consistent with their contemporary marketing themes, why couldn’t (and shouldn’t) McDonald’s do so?

Goldman Sachs and Facebook: No Americans Allowed!

Goldman Sachs and Facebook are veritable American icons that bestride their respective industries. Goldman, for instance, has survived its searing caricature as a great, greedy vampire squid; it continues to dominate the financial industry from its world headquarters in lower Manhattan. And Facebook, likewise, has survived a film portrayal of its founder, President and CEO as a ruthless social climber; it now dominates the social media sector of the internet from its Silicon Valley base.

This pair of quintessential American firms joined forces last week, with Goldman selling $1 billion of Facebook shares. Given each firm’s powerful position in the American economy, it would have been reasonable to assume that the stock sale would have focused on American investors. Surprisingly, though, Goldman actually arranged to restrict its sale to buyers who were located outside of the United States.

In other words, Americans were the only investors in the world who were denied the opportunity to purchase Facebook stock! But why would Goldman, with Facebook’s approval, refuse to sell stock to American investors? And why would American regulators sit by and allow these firms to cater exclusively to foreigners?

Avoiding Prosecution

Oddly enough, Goldman reportedly feared being charged with legal violations by the United States Securities and Exchange Commission (SEC) if it sold Facebook stock to Americans, and thus refused to do so in order to reduce the risk of prosecution. In other words, Goldman believed that the SEC actually preferred that it cater exclusively to foreign investors.

To be specific, Goldman believed that it might have been accused of violating two distinct regulations if it sold Facebook shares to investors in the United States. One involved the rather arbitrary number 500; under SEC regulations, any American company that is owned by 500 or more investors must disclose its financial statements to the general public.

Because Facebook did not wish to make such disclosures until some time next year, Goldman created a single Special Investment Vehicle (SIV) that invested in Facebook; it then sold shares in the SIV to outside investors, thereby avoiding the restriction. Nevertheless, Goldman was concerned that the SEC might not count this SIV as a single investor because it actually represents the ownership interests of many client investors.

The second law involved a prohibition against private companies engaging in “general solicitation and general advertising” activities to attract investors; apparently, such activities are only permissible when conducted by publicly traded firms and not by privately owned firms. Although Goldman assiduously avoided any such formal activities, word of the transaction leaked out and set the public financial press on fire. The news leaks stoked immense public interest and reporting about the sale, and thus Goldman feared that the SEC would treat its private activities as public solicitations.

So Goldman, with Facebook’s approval, decided to eliminate any chance of prosecution involving a breach of one or both of these regulations by simply refusing to sell any stock to American investors. In fact, Americans who responded enthusiastically to a preliminary Goldman sales pitch were later contacted and told “thanks but no thanks; we are no longer willing to sell shares to you!”

Future Transactions and Public Policy

How will Goldman’s and Facebook’s “foreigners only” policy affect future equity sales transactions? One ramification, clearly, is that the continuation of this policy would drive ownership shares of successful American organizations into the hands of foreign investors. Last week’s sale, for instance, involved the placement of $1 billion of stock for a firm (i.e. Facebook) that was valued at $50 billion, thereby banishing 2% of the iconic American firm’s equity from the portfolios of American investors. As a result, 2% of all of Facebook’s future profits, dividends, and gains from increases in market capitalization will be claimed by foreigners.

In addition, this policy might help drive future stock sales transactions into the hands of foreign banking institutions and away from Goldman and other American firms. Facebook’s executive team was reportedly displeased about Goldman’s difficulties in managing this equity sale; in the future, they and other firms might simply opt to hire foreign banks to manage such transactions, particularly those that continue to exclude American investors.

Furthermore, the SEC’s professional judgment may be called into question as well. After all, why bother with a 500 investor threshold for public reporting purposes if this regulation can be easily skirted through the creation of a single SIV that purchases stock on behalf of multiple parties? And why ban American firms from engaging in general solicitation and advertising activities when such information might help address rumors that are circulating in the press about their private placements?

From a public policy perspective, the biggest question of all might involve whether American regulators are appropriately positioned to protect American investors in an increasingly global environment. Ultimately, an entirely new regulatory system might be preferable to one that denies American citizens the right to invest in their own home-grown firms.