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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RepuStars 2013 June 1

C. HUYGENS - Saturday, June 01, 2013

Weekly Reputation Index Metrics


At the close of trading May 31, 2013, REPUVART and REPUVAR stood at 3405.78 and 2887.07 respectively. Over the past four weeks, the former has changed by -0.36%, while the latter has changed by -0.57%. The benchmark S&P500 Composite Index stood at 1420.41 (31 Dec 2001=1000) and has changed over the past four weeks by 1.01%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 31.87% and 29.30% respectively; the S&P500 Composite Index has changed by 27.60%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 72.95% and 64.97% respectively; the S&P 500 Composite Index has changed by 52.30%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

Rational exuberance fed by the world’s central bankers continues to drive “errors in decision making” as termed by behavioral economists. Rational expectations, which are central to assessments of reputational value, are taking a back seat to other competing drivers of stock price. RepuSpx, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 7.91% this week, a slip back from last week. Its trailing twelve-month returns of 34.73% are beating the market by 10.28%, up another 110 basis points.

RepuStars, plagued by a few companies that have greatly disappointed stakeholders, decreased its spread loss by 9 basis points. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME) which returned to first place with returns of 33.71%, Wellpoint Inc (WLP) which moves back into second place with returns of 29.82%, and Michael Kors Holdings (KORS) which returns to the top three at 20.28% year to date returns. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, Fusion I-O, now sans its founders, is down less at -34.44% Royal Gold Inc. (RGLD) is down less at -30.95%, and scandal-plagued VeriFone Systems Inc. (PAY) is about the same at a loss of -24.33%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

The RepuStars® Variety Corporate Reputation Index calculated by S&P/Dow Jones Indexes is the first-ever composite equity index based on a quantitative value strategy informed by the Steel City Re Reputational Value Metrics. The metrics comprise non-financial indicators of reputational value (RVM) and ranking (CRR). The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click here for real time quotes.

The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to  Steel City Re’s proprietary Reputational Value Metrics™, which track 7400 companies weekly. The principles behind measuring reputational value are described in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others (2012, Apress).

The RepuStars indices are reconstituted annually in the first week of January and posted by S&P/Dow Jones Indexes in the third week. The Indices were last reconstituted 20 Jan 2012.

Reputation, Risk and Finance

Reputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:

1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the second Friday of every month, read the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012)  or its predecessor, Mission: Intangible. Managing risk and reputation to create enterprise value (2010), available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.

Notices

Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). “RepuStars” and “Steel City Re” are registered trademarks of C. Huygens & Co. LLC. The method underpinning the RepuStars Variety indexes is subject to a pending patent assigned to C. Huygens & Co. LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (“S&P Dow Jones Indices”) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. Past performance of an index is not an indication of future results. All information provided by S&P Dow Jones Indices is general in nature and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments offered by third parties that are based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that seeks to provide an investment return based on the performance of any Index. Investment products based on the RepuStars Variety Corporate Reputation Indexes are not sponsored, endorsed, sold or promoted by Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC, or their respective affiliates and none of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in this piece does not in any way reflect an opinion of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates on the investment merits of such company. None of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates is providing investment advice in connection with these indexes.

Sears Holdings: Know when to hold, when to fold

C. HUYGENS - Wednesday, May 29, 2013
Financial wags are talking about retail sector mergers. The buzz: "How does Neiman Saks Fifth Avenue sound? Or Saks Fifth Avenue Marcus?" Or this one: Sears and JCPenny? Assuming the exercise has greater prospects then rearranging the deck chairs on the Titanic, why not? Both JCPenny and Sears could use some reputational help. Huygens spent time recently on the former's near suicide. Here are the Steel City Re reputational value metrics for the latter.

Briefly, the RVM volatilties are in the 14th percentile indicating the consensus trend among stakeholders is set -- and it is not pretty. The reputational rank, aka reputational premium, is rock bottom for the peer group. With numbers these bad, stakeholders would welcome almost any surprise.

Procter & Gamble: The king is dead. Long live the king!

C. HUYGENS - Monday, May 27, 2013
In December 2009, outgoing P&G CEO AG Lafley said, “I am retiring with confidence in Bob McDonald and his team. This is the right time to complete our management transition.” Last friday, wags were reading into communiques the reverse. "This is the right time to restore our former management transition."

There are several ironies about all this. First, after weeks of governance experts piling on to the idea that Jamie Dimon could not be trusted with both the CEO and Chairmanship roles at JPMorgan Chase, nary a negative word could be found suggesting that there was anything wrong with AG Lafley taking on the roles at P&G of Chairman, CEO and President. Second, there was near-universal accolades for Lafley's reputation as a giant in innovation -- a point Huygens disputed previously when he suggested that P&G's current problems are a direct result of Lafley's strategy.

However, as an American Pragmatist, Huygens appreciates that what matters is what the markets expect. It was apparent to all that under McDonald, P&G’s profit margins, market share and stock price lagged relative to peers such as Unilever PLC (UL), Colgate-Palmolive Co. (CL) and Clorox Inc. (CLX). In light of abysmal performance, those expectations, reflected in the Steel City Re reputational value metrics (or the Reputation Premium, Consensus Trend, and Consensus Benchmark as those metrics are explained by Consensiv) are informative.

This snapshot, taken at the close of markets last Thursday only hours before the announced change of leadership, shows evidence of stakeholder unrest peaking nearly three weeks ago when the Current RVM Volatility (or Consensus Trend) peaked at nearly 5% and was at the 73rd percentile of the peer group after nearly a year of hovering in a much lower state of anxiety at the 33rd percentile. Meanwhile, return on equity dropped to the 29th percentile representing a 10-point drop from September of last year and consistent with Huygens' projections.  Over the same period, the Current CRR Rank (Reputational Premium) dropped from the 95th percentile to the 83rd percentile.

The data suggest that McDonald's fate was sealed about one month ago. Owing to the time of sampling, the data do not show what the majority of stakeholders expect from Lafley going forward, although it is fair to say that the 4% equity boost Friday signals that equity investors, at any rate, are optimistic.


RepuStars 2013 May 25

C. HUYGENS - Saturday, May 25, 2013

Weekly Reputation Index Metrics


At the close of trading May 24, 2013, REPUVART and REPUVAR stood at 3421.88 and 2903.52 respectively. Over the past four weeks, the former has changed by 3.25%, while the latter has changed by 2.76%. The benchmark S&P500 Composite Index stood at 1436.83 (31 Dec 2001=1000) and has changed over the past four weeks by 4.26%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 27.49% and 25.10% respectively; the S&P500 Composite Index has changed by 25.18%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 74.34% and 66.18% respectively; the S&P 500 Composite Index has changed by 53.59%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

Earlier this week, Ben Bernanke suggested the Federal Reserve could begin ending QE “in the next few meetings” if the jobs market continues to improve. “If we do that, it would not mean that we are automatically aiming towards a complete wind-down,” he cautioned, in testimony to Congress. The market’s response, Thursday, was an indication of the degree to which much of the current excitement can be attributed to the will of central bankers.

Rational exuberance continues to drive “errors in decision making” as termed by behavioral economists and rational expectations, which are central to assessments of reputational value, are taking a back seat to other competing drivers of stock price. RepuSpx, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 9.66% this week, a notch up from last week. Its trailing twelve-month returns of 33.99% are beating the market by 9.09%, up another 52 basis points.

RepuStars, plagued by a few companies that have greatly disappointed stakeholders, decreased its spread loss by 30 basis points. The greatest gains in the portfolio for the year are being reported by Wellpoint Inc (WLP) which moves into first place with returns of 29.84%, GameStop Corp (GME) which dropped into second place with returns of 29.48%, and Hain Celestial (HAIN) which joins the top three at 21.09% year to date returns. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, Fusion I-O, now sans its founders, is down -37.02% Royal Gold Inc. (RGLD) is down -35.23%, and scandal-plagued VeriFone Systems Inc. (PAY) is up to a loss of only -23.97%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

The RepuStars® Variety Corporate Reputation Index calculated by S&P/Dow Jones Indexes is the first-ever composite equity index based on a quantitative value strategy informed by the Steel City Re Reputational Value Metrics. The metrics comprise non-financial indicators of reputational value (RVM) and ranking (CRR). The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click here for real time quotes.

The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to  Steel City Re’s proprietary Reputational Value Metrics™, which track 7400 companies weekly. The principles behind measuring reputational value are described in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others (2012, Apress).

The RepuStars indices are reconstituted annually in the first week of January and posted by S&P/Dow Jones Indexes in the third week. The Indices were last reconstituted 20 Jan 2012.

Reputation, Risk and Finance

Reputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:

1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the second Friday of every month, read the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012)  or its predecessor, Mission: Intangible. Managing risk and reputation to create enterprise value (2010), available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.

Notices

Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). “RepuStars” and “Steel City Re” are registered trademarks of C. Huygens & Co. LLC. The method underpinning the RepuStars Variety indexes is subject to a pending patent assigned to C. Huygens & Co. LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (“S&P Dow Jones Indices”) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. Past performance of an index is not an indication of future results. All information provided by S&P Dow Jones Indices is general in nature and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments offered by third parties that are based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that seeks to provide an investment return based on the performance of any Index. Investment products based on the RepuStars Variety Corporate Reputation Indexes are not sponsored, endorsed, sold or promoted by Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC, or their respective affiliates and none of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in this piece does not in any way reflect an opinion of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates on the investment merits of such company. None of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates is providing investment advice in connection with these indexes.

Cornucopia of Intangibles - MIMB Program 28 June

C. HUYGENS - Friday, May 24, 2013

Briefing Friday 28 June May at 10h00 ET

Program: How to Celebrate a Cornucopia of Intangibles


Texts as old as the bible affirm that one reaps what one sows. Returning to present times, what does one sow to harvest intangibles, and is there a more modern text with a less pithy presentation of strategy?

Joining our conversation are Andrew J. Sherman, author of 17 books on the legal and strategic aspects of business growth, franchising, capital formation, and the leveraging of intellectual property, and a partner with Jones Day; and Paul Liebman, an OCEG fellow, an ethics and integrity thought leader, and a member of the Society's Reputation Leadership Council.

Jonathan Salem Baskin,  author of Tell the Truth, moderates. Learn more.

Herbalife: Resilience even a hedge fund could love

C. HUYGENS - Thursday, May 23, 2013
If the nameless and faceless blather of business reporting leaves you hungry for drama, you'd get more than a full plate at Herbalife. The core issue is captured by Bloomberg's story title this week, "Herbalife: Pyramid Scheme or Juggernaut?" The drama behind the story is the battle of hedge fund managers with egos equal to the task. The current score, headlined by Forbes this week, "Carl Icahn And Herbalife Are Crushing Bill Ackman."

The Steel City Re reputational value metrics, having correctly anticipated the JPMorgan Chase vote this past Tuesday through an analysis of the consensus trend, as Consensiv describes the process, affirm the expectations of stakeholders for a brighter future. Looking first at the underpinnings of the consensus trend, the Current RVM Volatility, the value has decreased from a worrisome 7% to the peer median (technically, 60th percentile) of around 2% relative to the 11 companies in the food distributors sector. The CRR, a measure of the reputational premium value, is also at the 60th percentile which is impressive given the events of the past few months. Return on equity, reflecting reasonable reticence by equity investors, is lagging at the 10th percentile suggesting by the logic underpinning the RepuStars Variety Corporate Reputation Composite Equity Index (Ticker: REPUVAR) that there is significant upside opportunity.

Additional background on these measures of reputational value can be found in the 2102 book, Reputation, Stock Price, and You.

JPMorgan: Bowl Game Post-Mortem

C. HUYGENS - Wednesday, May 22, 2013
The votes are in and by a supermajority, Jamie Dimon is still both CEO and Chairman of JPMorgan Chase. Notwithstanding a concerted effort by the proxy services, ISS and Glass, he was returned to the dual role with a stronger showing than last year's simple majority.

For readers of this blog, the outcome was expected, according to an analysis of the Steel City Re reputation metrics by the advisory firm, Consensiv, and their Consensus Trend measure. While the outcome was not in doubt from a reputation-based model of behavior, a post-mortem is still valuable. In this regard, Huygens writes with authority having served as Deputy Coroner in Los Angeles County in a prior life.

Using Steel City Re's repetitional value metrics, Consensiv scores reputational value using a proprietary algorithm to calculate net expected behaviors. It is agnostic to qualitative values of what should matter to stakeholders, and measures instead the outcomes of whatever observably matters.

Like a jury, stakeholders as a group bring to the table a simple, unvarnished understanding of the facts. It is a valuable understanding described by James Surowiecki as the Wisdom of Crowds. The stakeholders understood that while companies are generally faceless, in times of crises or turmoil, their identity fuses with that of their leaders. This melding of CEO and company reputation has been studied by leading reputation experts such as Dr. Leslie Gaines Ross and summarized in the 2012 opus, Reputation, Stock Price and You.

Simply put, the stakeholders understood that the separation of CEO and Chair, allegedly on the basis of principles of good governance, would be perceived as a personal rebuke that would damage Jamie Dimon's reputation. They also understood that Dimon's personal reputation, that is, the expectations of the benefits of his leadership, were drivers of some of the excess value in JPMorgan Chase (what Consensiv terms Reputational Premium). Last, they understood that public humiliation, like a scarlet letter, would permanently stain Dimon and force his resignation. Reputational value insurances, which are designed to prevent such permanent damage to senior executives and board members, are not effective after the damage is done.

To remain in the limelight would only ensure repeated embarrassment, as the press would forever follow his name with a parenthetic reference to his fall; e.g., Tony (I want my life back) Hayward, Frederick (I would like my knighthood back) Goodwin, and the classic Michael (disgraced junk bond king) Milken. The stakeholders understood all that. The reputational value metrics, as Jonathan Salem Baskin explains in an article in Forbes today, captured behaviors that reflected those impressions.

Reputation Risks in the Supply Chain

C. HUYGENS - Tuesday, May 21, 2013
John R. Lund, then the senior vice president of Disney Parks Supply Chain Management for Disney Destinations LLC, told Supply Chain Quarterly, “The reputation of a company is fundamentally affected by the choices you make in running a supply chain.” Some of the details of Disney's approch to managing its reputation through supply chain controls are detailed in the 2012 publication, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others.

Yesterday, Business Insurance magazine weighed in to the debate with an article prompted by the recent tragic collapse of a building in Bangladesh housing many clothing suppliers. There are a number of proposed strategies in the alternative reflecting the diversity of understandings of what comprise reputational risk. The most expensive, which seem to be addressing after-the-fact-liabilities, will probably not yield the best reputational results. The most efficient, however, require the paradigm shift advocated by firms such as Steel City Re and Consensiv; and by a growing number of risk advisers.

Reputation Risk Still #1

C. HUYGENS - Monday, May 20, 2013
When the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012), was in development last spring, the pitch to publishers was, "The #1 concern of 71% of corporate directors surveyed." It still is.

Eisner Amper, the accountancy, just released their 2013 board survey. "Other than financial risk, respondents were asked to identify risks of most concern. Seventy-three percent identified reputational risk as a primary concern of their boards – a 19% increase in the number of board members who identify this as their greatest concern since the initial Survey, four years ago. The top three reputational risks cited were: Product quality, liability and customer satisfaction; Public perception and brand Integrity, fraud, ethics; and the Foreign Corrupt Practices Act (FCPA)."

JPMorgan: Bowl game, Tampa, 21 May - Dimon 1, Activists 0

C. HUYGENS - Sunday, May 19, 2013
It's last call at the betting window. Cold beers have been wagered on the outcome of the May 21 annual shareholder meeting of JPMorgan Chase. One one side, the status quo which has weathered risky times, rebounded from mistakes, and outperformed on a range of metrics. On the other side, philosophical and ideological notions of governance backed by the moral principle that less risk-taking is an inherent good. Governance blogs on LinkedIn provide ample background:

Boards and Advisors Blog 1
Boards and Advisors Blog 2
Boards and Advisors Blog 3

The quants, too, have their say. With five days, left, the Steel City Re reputational value metrics, as before,  show exceptionally low levels of current reputational value (Current RVM) volatility at JPM indicating stakeholders are not expecting change.


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