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: Not taking it anymore

C. HUYGENS - Wednesday, September 11, 2013
BP is mad as hell and not taking it anymore. They're drawing a line under the amount of compensation they're prepared to pay for the April 2010 Gulf Disaster, and taking the fight to litigators, regulators and mommy bloggers.

“BP has done what it was required to do,” said Jonathan Salem Baskin, a Chicago-based brand management specialist and co-founder of Consensiv, a consulting firm for managing reputations. But he added that “after spending millions in communications saying, ‘I’m sorry,’ from a reputation standpoint, it’s done nothing in terms of their financial performance.

Read the whole story in Politico.

Boeing: In Fear of a BP Moment

C. HUYGENS - Sunday, July 14, 2013
On Friday, January 13, fire on an Ethiopian Airlines Boeing 787 at Heathrow Airport in London and a separate technical problem on a second 787 owned by Britain's Thomson Airways raised new questions about an aircraft seen as crucial to Boeing's future. Boeing said it had people on the ground working to understand the causes of the fire.

Have we seen this movie before? In the early days after the Deepwater Horizon explosion in the spring of 2010, then-BP CEO Tony Hayward provided this assurance. "I think the environmental impact of this disaster is likely to have been very, very modest." Trust us, he said, to get this under control.

For weeks, BP benefited from the doubt, and its image of environmental concern built up through a major investment in marketing and communications. Surely, a firm that is beyond petroleum will successfully protect the environment.

Of course, talking about protecting the environment while allegedly cutting back on investments in processes that actually protect the environment is a recipe for a modern-day reputational crisis. And so it came to pass that stakeholder disappointment in the eventual outcome, forced by reality trumping hope, was expensive for BP, its CEO, the board, and investors. (See detailed case study in Reputation, Stock Price and You.)

Enter Boeing, a highly reputable aerospace and defense manufacturer that has had a string of significant problems with the 787 Dreamliner, most recently being fires associated with the aircraft’s batteries. It is also a firm whose cost-saving strategy for 787 production produced a three-year delay, the ire of its unions, and allegations of cutting corners.

At the 20 May resumption of flights by United Airlines after the FAA-ordered stand-down, and nearly three years to the day after Hayward’s comments, Boeing CEO James McNerney said, “We are very sorry about the delay that was caused by some of the technology work-arounds that we had to implement. But,” he added, “the promise of this airplane remains unchanged. We are confident of that. More importantly, we are confident in the safety of this aircraft. Safety means everything to us. It’s in our DNA.” Trust us, he said.

“I trust Boeing that they know what they are doing,” said a Flight 1 passenger to Bloomberg. And the reputational value metrics, shown below as of Thursday, 11 July, affirm the return in trust. CRR, a measure of reputational value premium, is up. Current RVM volatility, a measure of consensus trend or stakeholder concurrence, is more favorable (down). So on Friday, 12 July, when another Boeing 787 caught fire, stakeholders were surprised. Equity investors registered their surprise by shaving 5% off the stock price. On Sunday, Bloomberg reports, In the early stages of the investigation, airlines said they would continue to fly their Dreamliners, while others confirmed they would stick to their plans to buy the aircraft. Jonathan Salem Baskin, Mission Intangible Monthly Briefing moderator, explains on CNBC how other stakeholders may respond to this latest surprise. Click here.

ExxonMobil and BP: Promises, promises

C. HUYGENS - Thursday, June 13, 2013
Nearly three years ago, BP suffered a near fatal reputational disaster precipitated by a series of technical failures leading to a massive oil spill in the Gulf of Mexico. There are many reasons why the technical failures led to the spill. More important, the accident was a reputational disaster because every stakeholder group held BP culpable of willfully breaching its commitment of responsible, sustainable drilling.

Yes, BP's 'Beyond Petroleum' campaign was wickedly effective. It established an implicit social contract, and stakeholder reasonably expected conformance. A key going forward lesson should have been, 'manage expectations.' ExxonMobil learned it after the Valdez disaster in Prince William Sound. Since then, they have strategically managed expectations, and their reputational value has benefited.

BP, on the other hand, appears to be making promises again. Its campaigns all but declare, "The environment has been restored, tourism is back, the company has made its operations safer and, perhaps most importantly, it spends more money in the U.S. than any of its competitors. It’s time to forgive and forget." Writes Jonathan Salem Baskin in Forbes, "Perhaps its reputation would have been far better served if it had used the Gulf spill as a chance to strengthen and reaffirm its stakeholder understanding of its business. It could enable them to make more informed decisions about energy, while laying the groundwork for more understanding and even forgiveness when the next crisis occurs. It might even enhance the tangible worth of its reputation."

Objectively, the metrics back Baskin's suggestion. The Steel City Re reputational value metrics show that XOM has a significant Reputation Premium, as termed by Consensiv, relative to BP.  In a peer group of 52 integrated oil companies, Exxon's reputation ranking is at the 100th percentile; BP's is the in 4rth quartile at 84%. In addition, BP's current RVM volatility, a measure of stakeholder consensus (Consensus Trend) is rising. Its not at a material, or "feverish" level by any means, but the movement of the metric concurrent with the communications campaign suggests not everyone is buying the story.

BP: 45x reputation

C. HUYGENS - Thursday, May 10, 2012
The chairman’s letter in the annual report, signed 6 March 2012, is clear. “The board set three priorities for BP,” wrote Carl-Henric Svanberg. “Safety must be enhanced and embedded. Trust must be regained. Value must be created through a clear strategic plan”

Safety, now a factor in the executive bonus plan, is tangible evidence of the company’s strategic priorities of reinforcing safety and risk management, rebuilding trust and reinforcing value creation of its intangibles. At group level, the safety and risk management component includes targets for recordable injury frequency, loss of primary containment and implementation of change programmes. Rebuilding trust is focused on external reputation as measured by external surveys and internal morale as measured by surveys.

BP’s board considers reputation from two perspectives – the reputational risks to the group and the processes the company has in place to manage these risks. In 2011, the board reviewed external reputation data which looked at BP’s reputation in the UK and US. It also discussed the group’s communications strategy and its reputation management plan.

To assure that stakeholders know that BP is serious about reputation and its risk management, the annual report offers up the term 20 times in the 10k section 1A-Risks. The term also appears liberally throughout the balance of the document for a total of 45 mentions over twenty different pages in the 300 page document.

In what appears to be a growing trend first announced formally at UBS, but clearly preceded by BP, both reputation measurement and reputational risk are major issues at the Board level. This is why: as reported here earlier, firms that have superior reputations newly discovered can pickup an average of 6% of market cap, while firms that experience a reputational crisis can lose an average of 7%. Anything that can precipitate a 13% swing in value is bound to get the attention of a corproate board.

The Steel City Re reputation metrics for BP this week show the following trends: BP’s reputational value metric, a non-financial indicator of reputational value, is stabilizing with a near median volatility relative to its peers, and a long term forecast of stability. The company’s corporate reputation ranking, an indicator of relative standing, places the firm in the 81st percentile. Since the volatility indicators are neutral, the data do not yet indicate a near term boost in equity returns above the median for the peer group. After years of reputational volatility, it appears at this point that equity investors are waiting for further evidence of material risk reduction in RepRisk -- reputation risk. Nevertheless, considering where things were two years ago, BP has come "a long way baby."

BP: Volatility is good

C. HUYGENS - Saturday, December 10, 2011
If volatility is misery to most equities, and misery likes company, then (with apologies to Gordon Gekko), volatility, for lack of a better word, is good. At least if you are BP.

Notwithstanding its poster-child status for reputational crises, BP's trailing twelve month returns are slightly above the median of its peer group in the 40-member integrated oil company sector and its intangible asset fraction is up even though its relative reputational standing continues to slide.

The explanation for this unusual mix of reputational metrics is volatility. BP's exponentially weighted moving average volatility is now at 75%; its vector and velocity are gyrating wildly. But look at the industry peers.

Between and among the members of this sector, the volatility is less than 20% even while the sector as a whole, or at least its median value, is in the 70th percentile bracket relative to all 6000 companies measured by the Steel City Re corporate reputation index.

The data suggest that when a company's reputational issues trigger volatility, value is lost; but when that volatility begins to resemble the volatility of the market, then behaviors associated with market fear take over and reputational factors take on only secondary importance to residual value. In that context, where 70% of the median value of a company is linked to book assets such as oil, BP looks less risky.


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: 2010 reputation story of the year

C. HUYGENS - Wednesday, December 22, 2010
Reputation is a story with chapters on building, protecting and restoring. In 2010, BP made for compelling reading. The reputation metrics shown below, courtesy of Steel City Re and its Corporate Reputation Index, speak volumes.

BP's own reputation metrics and derivative volatility metrics suggest that its reputation is very much on the mend, but it is still hovering in the vicinity of the 80th percentile, and it is still highly volatile. The fourth chart shows the median and variance for the 51 industry peers.

The highlights. At the depths of the reputation crisis, BP's intangible asset value (chart 5) dropped to nearly 0%. Its equity value has been crawling back but it is still underperforming its peers by 33%. BP's EWMA volatility is harmonically settling down but is currently still high at 80%. For the past quarter, the reputation velocity has been positive. However, again as shown in chart five, its intangible asset fraction is still below the mean of its peer group -- a significant drop from its value twelve months ago.

Huygens now takes a holiday. Best wishes to all and looking forward to continuing the conversation early in the New Year.


BP: Reputation restoration 101

C. HUYGENS - Sunday, October 03, 2010
It is hard to be describe the process of reputation restoration more concisely than this:

If we meet our obligations like we have been, then over time people will say – this was a good corporate citizen to respond to an accident that has been a wake-up call to the entire oil and gas industry. If we ensure this doesn't happen again then maybe we can restore our reputation in the US.

Bob Dudley, CEO, BP (NYSE:BP)
1 Oct 2010

To enumerate:
1. Acknowledge the problem and identify both the proximate and systemic cause(s)
2. Repair risky processes to mitigate the cause(s)
3. Raise the bar for the entire industry.

Yes, it's that simple. Now go execute. Not sure how? Then join the Society and become part of the premier global resource for professionals seeking enterprise-wide strategies that foster an ethical and innovative business culture, increase the quality, safety, sustainability and security of goods and services, and enhance reputations.

BP: FTSE4Good bids adieu

C. HUYGENS - Wednesday, September 15, 2010
This coming weekend, the good people who manage the FTSE4Good ethical investment index will show BP (NYSE:BP) the door. From 18 September, BP will be excluded from the index which many managers of ethical funds use to screen companies before including them in their portfolios. (BP is not a constituent member of either of the RepuStars composite indices.)

All we can ask is, "what took the FTSE so long?" Below, the Steel City Re Corporate Reputation Index ranking for BP and other reputation and intangible asset-related metrics. The pictures are worth thousands of words.


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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