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 vs. GS: WSJ seeks the biggest loser

C. HUYGENS - Wednesday, June 09, 2010
On 8 June, the Wall Street Journal ran a pair of blog stories titled, Who Has It Worse? BP or Goldman Sachs? Michael Corkery argues that BP (NYSE:BP) is the biggest loser. The top two reasons are regulatory risk consequences and costs arising from the headline risk crisis. Reduced pricing power also gets a notable mention. Stephen Grocer votes for Goldman Sachs (NYSE:GS) on the basis of three factors: Goldman has more reputation value to lose; reputation is central to Goldman Sachs’ business, and the disparagement of Goldman Sachs is part of a class war that will have long-lasting consequences.
 
Let’s look at the reputation metrics. The Steel City Re Corporate Reputation Index shows that over the past year, BP’s ranking among the 51 companies in the Oil Refiners & Distribution Sector has dropped from the 92nd percentile to the 26th percentile and is still trending downward. As of 3 June, it was under performing the median of its peer group by 28%. Its exponentially weighted moving average reputation index volatility is rapidly approaching five orders of magnitude.

Further, the median reputation ranking of the entire sector has dropped on a percentile basis from the high 70’s to the low 50’s relative to the standing of all firms traded on the major western markets.

Turning to Goldman Sachs, the Steel City Re Corporate Reputation Index shows that over the past year, Goldman’s ranking among the 38 companies in the Securities Brokerage Sector has dropped from the 97th percentile to the 75th percentile having bottomed out at below the 50th percentile. It is now trending upward. As of 3 June, it was under performing the median of its peer group by 20%. Its exponentially weighted moving average reputation index volatility appears to have peaked at 5 orders of magnitude.

Further, the median reputation ranking of the entire sector has hovered around the 40th percentile, although the variance within the sector has grown from .15 to .25.

Compared and contrasted, these data lead to two very different conclusions regarding the futures of BP and Goldman. Goldman is coming back. Goldman Sachs is exhibiting reputation resilience—a highly desired state following a headline risk event whereby it is able to hold on to some of its pricing power, continue to operate with lower costs, benefit from greater investor expectations, and appears to have resolved many of the uncertainties surrounding its enterprise value. In contrast, BP is still sliding reputationally, has surrendered pricing power, is facing unimaginable costs, and is the subject of takeover speculation.

BP is unquestionably the biggest loser at this point, and the indicators suggest that it will handily ‘win’ this competition in the long run, too.

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