MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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BP: Finger pointing

C. HUYGENS - Friday, April 29, 2011
On 21 April, BP sued Halliburton, Transocean, and Cameron International Over the Gulf Disaster – known in polite circles as the “ink in the drink.” It is a reputation story that is still unfolding. According to the NACD Director’s Daily and its summary of various news services,

"BP PLC said it had filed a lawsuit against Halliburton Co.," the Wall Street Journal (April 21, Chazan) reports, "claiming its 'misconduct' contributed to last year's Deepwater Horizon disaster that led to the worst offshore oil spill in U.S. history." The lawsuit was filed on April 20, the first anniversary of the blowout on BP's Macondo well in the Gulf of Mexico, that killed 11 men and destroyed the Deepwater Horizon rig. Wednesday marked the expiration of a court-issued deadline to make filings preserving the right to sue companies involved in the spill. Halliburton designed the failed cement seal that experts believe permitted explosive gas to flow into the well and reach the rig. "Halliburton doesn't deny the seal failed," the Journal notes, "but argues BP should have run tests that would have revealed the problem." BP's says its lawsuit aims to hold Halliburton accountable for "improper conduct, errors and omissions, including fraud and concealment." Halliburton said it would "vigorously deny these claims."

Bloomberg (April 21) adds that the lawsuit comes shortly after BP filed suit against two other contractors, Transocean Ltd., the Deepwater Horizon's owner and operator, and Cameron International Corp., which manufactured a critical safety device known as a blowout preventer. According to BP's complaint, the former "breached its contractual duties, including failing to adequately maintain the rig and fix earlier engine problems and failing to train its crew and properly coordinate efforts to fight fires on the vessel." BP is suing Transocean for at least $40 billion in damages. Cameron, meanwhile, is being sued over allegations that its blowout-prevention equipment was a cause "in whole or in part" of the blowout and ensuing oil spill in the Gulf.

According to Reuters (April 21, Bergin), analysts said BP had little chance of winning the cases and was more likely trying to force the companies to settle. The wire service adds, "Management experts said pursuing the lawsuits could further damage BP's already battered reputation as well as reveal yet more embarrassing details of the way the disaster was handled."

Turning to the reputation metrics, the Steel City Re Corporate Reputation Index rankings for the respective firms is shown in the composite graph below. Most notable are the differences in both the magnitude and duration of the reputation depression associated with the same singular event -- the destruction of the Deepwater Horizon rig last year.

Turning now to the reputation derivatives, the velocity and vector values for the respective companies, the magnitudes and directions of reputation change over the trailing 6 months shows patterns suggesting that the expectations noted above are probably right -- BP's reputation will continue to be battered as long as this matter remains in circulation. Halliburton runs a close second with extraordinary volatility, but both TransOcean and Cooper Cameron are not showing currently any significant reputational wear and tear.


BP: Oh no, not again

Nir Kossovsky - Monday, May 03, 2010
In Douglas Adams’ The Hitchhiker's Guide to the Galaxy, “the only thing that went through the mind of the bowl of petunias as it fell was 'Oh no, not again.' Many people have speculated that if we knew exactly why the bowl of petunias had thought that we would know a lot more about the nature of the Universe than we do now.”



We can reasonably assume that similar thoughts raced through the minds of BP (NYSE:BP) executives on 20 April as the Deepwater Horizon drilling rig exploded, caught fire, and sank. And while we are probably equally clueless about the nature of the Company, as are stakeholders who own its reputation, of this we can be certain: it is sinking.

As illustrated in the series of Steel City Re Corporate Reputation Index charts below, BP and the other firms associated with this safety and environmental disaster are experiencing an acceleration of a steady reputational decline. And as noted in the book, Mission Intangible and more recently in an article in CFO magazine, these declines are indications and warnings of an increased risk of a reputational event.

Not that BP is unaware. The New York Times quotes BP CEO Tony Hayward on Friday as saying, “Reputationally, and in every other way, we will be judged by the quality, intensity, speed and efficacy of our response.”

BP has blamed the rig’s owner and operator, Transocean (NYSE:RIG), for the accident. Further investigation is now suggesting that a drilling subcontractor, Halliburton (NYSE:HAL), may have failed to execute a critical task that prevents gas and oil from escaping from the well.

The process is called ‘cementing’ and it is challenging. A 2007 study by the U.S. Minerals Management Service found that cementing was the single most-important factor in 18 of 39 well blowouts in the Gulf of Mexico over a 14-year period. More recently, Halliburton (NYSE:HAL) has been accused of performing a poor cement job in the case of a major blowout in the Timor Sea off Australia last August. An investigation is under way.

As a case study of risk and reputation management, this has almost all the main elements. Consider the following:

1. Iconic brand, BP, working through subcontractors - a key source of risk (we explore this topic further this Friday, see below)
2. History of failures in managing the processes of assuring safety - a reputation lacking resilience 
3. Marketing campaign built around sustainability laid to waste by a massive oil spill - lack of authenticity

The LA Times notes in a story on 1 May that experts were cautious about attributing blame, pending what are expected to be lengthy investigations by Congress and the Department of Homeland Security, which oversees the Coast Guard.

Satisfy your intellectual curiosity!

If the above issues pique your interest, here are several things you can do right now:

1. Register free of charge for the next IAFS Mission Intangible Monthly Briefing set for Friday 7 May at 12h00 EDT. The conversation will feature Scott Childers from Walt Disney and Bob Rittereiser from Zhi Verden on “Process-driven reputation risk in supply chains”
2. Purchase the book, Mission: Intangible. Managing risk and reputation to create enterprise value, at the IAFS Store (or any online book retailer) 
3. Become a member of the Intangible Asset Finance Society.
4. Join our community on Linked-In.

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