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 March 24

C. HUYGENS - Monday, March 25, 2013

Weekly Reputation Index Metrics


At the close of trading March 22, 2013, REPUVART and REPUVAR stood at 3226.37 and 2756.27 respectively. Over the past four weeks, the former has changed by 1.77%, while the latter has changed by 1.63%. The benchmark S&P500 Composite Index stood at 1356.08 (31 Dec 2001=1000) and has changed over the past four weeks by 2.72%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 11.86% and 10.09% respectively; the S&P500 Composite Index has changed by 11.44%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 57.67% and 50.93% respectively; the S&P 500 Composite Index has changed by 32.59%.

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

Analysis

The US markets are booming notwithstanding sequestration, the ongoing threats of Federal Government shutdown, and budget impasses. Europe and the BRICs are floundering, and Cyprus is showing that at least part of the independent part of the island shares at least some traits with Greece. It is Alice in Wonderland on Wall Street.

In this setting, it is not clear what constitutes rational expectations – the foundation for RepuStars. Add fraud, regulatory risk, and other surprises, and it makes for a highly volatile portfolio. The greatest gains in the portfolio for the year are being reported by Lamar Advertising Co (LAMR) returns to first place with a return of 19.78%, down a bit from last week, but plenty to surpass last week’s leader, Companhia Energetica Minas Gerais (ADR) (CIG) that lost more than 12% on rumors of regulatory risk. Bed Bath and Beyond (BBBY) returns to second place with 13.51% for the year, and American Gas Partners (APU) is again in the top rankings with a return of 11.16%. 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, the greatest disappointments this year are scandal-plagued VeriFone Systems Inc. (PAY) at -31.11%; Walter Investment Management Company (WAC) at -26.24%; Apple Inc.-linked Fusion-IO, Inc. (FIO) at -25.65%.

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 2013.

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.

Companhia Energetica Minas Gerais: Ominous signs

C. HUYGENS - Friday, March 22, 2013
Businesses operating in heavily regulated sectors invest significant resources in compliance matters and benefit from these exercises in control by having significantly fewer adverse reputational events. Steel City Re's actuarial data indicate that all things being equal, a company in the health care or utility sector is half as likely to experience a reputational value crisis.

Further analysis of Steel City Re's data by Consensiv show that the risk of a material loss of 7.5% or more in market capitalization is similarly reduced in these two sectors. Consensiv's analysis also indicates that there are warning signs of a pending adverse market cap event. All things being equal, an increase in the current RVM volatility in excess of 7% is associated with an increased risk of a near-term market cap fall. Background on the measures of reputational value can be found in the book, Reputation Stock Price and You: Why the market rewards some companies and punishes others.

Because they are in many ways protected from market forces, healthcare companies and utilities tend to attract investors with low risk tolerances who are rewarded with predictable performances. The lives of these companies are not unlike those of anesthesiologists: 99% boredom and 1% pure terror. When bad news comes, rare as it is, reactions are profound. A rapid rise in the current RVM volatility, or as it is called by Consensiv, the Consensus Trend, should therefore be doubly regarded as a credible warning sign.

Companhia Energetica Minas Gerais, or CEMIG, (NYSE:CIG) is a Brazil-based holding company primarily engaged in the electricity sector. The Company is mainly active in the construction and operation of systems of production, transformation, transmission, distribution and commercialization of electric power. It is also a constituent member of the RepuStars Variety Composite Equity Index, calculated by S&P/Dow Jones Indexes whose value is reported weekly on this blog.

Four weeks ago, as shown in the chart below, CEMIG's  Current RVM Volatility (top row, right, red EWMA CIG curve) began rising sharply. The data in the chart are current as of last Thursday, 8 days ago. Wednesday, 2 days ago, equity values plunged after "Banco Bradesco SA and Banco BTG Pactual SA disclosed their expectation (note the presence of that key word, expectation) that Brazil’s regulator might curb electricity rate increases." Other consequences included sending the Bovespa index to a two- week low.

Program - 29 March 2013 - Register Now

C. HUYGENS - Thursday, March 21, 2013

Briefing Friday 29 March at 10h00 ET

Program: Compliance: Is a goody-two-shoes reputation valuable?

In Billy Joel's New York, only the good die young. In post-Lehman New York, do the good have better prospects? When analysts make stock recommendations on the basis of environmental, sustainability and governance, factors, is there value in compliance? And what is one to make of the fact that fully half of the ten largest federal corporate criminal fines in history were imposed or agreed to in 2012.

Joining our conversation are Joan E. McKown, Partner, Jones Day and formerly the longtime chief counsel of the Division of Enforcement at the SEC; 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.. It's free. Register now.

KBR: Absent the fog of war

C. HUYGENS - Wednesday, March 20, 2013
A steady diet of military contracts in a drawn out war can create expectations of financial certainty. Ironically, the transparent benefits afforded by the fog of war become opaque as the fog lifts. This leads to unexpected uncertainty, and is reflected in the Steel City Re reputational value metrics. It also leads to an increased risk of surprise and enterprise value collapse, as Consensiv, the reputation consultancy, has recently demonstrated.

KBR, Inc., once a subsidiary of Halliburton, benefitted greatly from the war in Iraq, now winding down. As reported earlier this week in the Financial Times, the top 10 contractors secured business worth at least $72bn between them. "None has benefited more than KBR, once known as Kellogg Brown and Root. The controversial former subsidiary of Halliburton, which was once run by Dick Cheney, vice-president to George W. Bush, was awarded at least $39.5bn in federal contracts related to the Iraq war over the past decade."

Alas, the war is ending. The Steel City Re reputational value metrics show that when compared with 136 other Engineering and Construction services firms, the current RVM volatility (a measure of reputational value uncertainty) at the 58th percentile and the CRR (a measure of relative reputational ranking) also at the 58th percentile place this-once-giant-among-contractors in a median role. The negative investor response has moved this firm to a below median return on equity at the 23rd percentile and more unstable expectation for the future.

The generalized lesson is that years of little volatility reasonably create expectations of more of the same. When reality intercedes, the reactions can often be outsized, The RVM is a measure of reputational value; the current RVM volatility is a measure of consensus on that value. Spikes in RVM volatility are indicators of surprise, and it is rarely a good thing.

Barclays: Committed

C. HUYGENS - Sunday, March 17, 2013
Cynics insist that the big banks have only an interest in reputation -- an interest that distributes risk inequitably on others. As the old fable goes:

A Pig and a Chicken are walking down the road. The Chicken says: "Hey Pig, I was thinking we should open a restaurant!" Pig replies: "Hm, maybe, what would we call it?" The Chicken responds: "How about 'ham-n-eggs'?" The Pig thinks for a moment and says: "No thanks. I'd be committed, but you'd only be involved!"

Last year, UBS tied the CEO's bonus to measures of reputation. Now, a second bank is no longer chicken. In a bigger and bolder display of commitment, the 2012 Barclays Bank Annual Report describes robust board and operational level controls designed to drive reputation risk management throughout the enterprise.

In order to strengthen the governance relating to reputation matters, we have recategorised reputation risk as a new Principal Risk and have created a Board Conduct, Reputation and Operational Risk Committee in 2013. The Barclays Reputation Council created a Bank wide Reputation Risk Control Framework and Reputation Risk Impact/Control Policy, both of which were approved by the Board. The Council has also delivered training on reputation risk to senior executives across the bank to ensure the knowledge and culture is embedded.

The Steel City Re Reputational Value Metrics suggest Barclays is realizing some of the rewards associated with transparently reporting its commitment. RVM is a non-financial indicator of reputational value. The current RVM volatility, an indicator of homogeneity of expectations of reputational value, has been dropping steadily over the past 4 weeks since Huygens last reported the metrics.  Meanwhile, the CRR, a measure of relative reputational value in rank order, shows that BCS has climbed from the 21st to 24th percentile since mid-Feb. ROE is holding steady at just above the median for the sector comprising 49 banking firms.

The data show that BCS's emphasis on reputation, backed by authentic controls, is creating value. The controls have not been tested, so those that have been converted appreciate the qualitative effort. The data also show that while the number of sceptics is dropping, BCS current RVM volatility is still above the median at the 54th percentile. To extract more value from the investment, BCS needs to turn around this very large block of sceptics with a quantitative story -- something made possible by a product like reputational value insurance, perhaps?



RepuStars 2013 March 16

C. HUYGENS - Sunday, March 17, 2013

Weekly Reputation Index Metrics


At the close of trading March 15, 2013, REPUVART and REPUVAR stood at 3289.75 and 2810.41 respectively. Over the past four weeks, the former has changed by -1.25%, while the latter has changed by -1.38%. The benchmark S&P500 Composite Index stood at 1359.40 (31 Dec 2001=1000) and has changed over the past four weeks by 2.69%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 14.08% and 12.13% respectively; the S&P500 Composite Index has changed by 11.15%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 62.38% and 55.44% respectively; the S&P 500 Composite Index has changed by 34.61%.

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

Analysis

Having survived three weeks of sequestration and the Ides of March, pessimism is abating. Optimism is hanging around. REPUVAR is regaining some ground.

Speaking of companies whose intangible assets, in terms of their excess cash-generating potential (Reputational Premium), appear to have been undervalued at the start of this calendar year, it is not yet rosy. The greatest gains in the portfolio for the year are being reported by Companhia Energetica Minas Gerais (ADR) (CIG) that has moved up from 3rd place with year to date returns of 20.20%. Lamar Advertising Co (LAMR), drops back to second place with a return of 19.95%, up a bit from last week. Genpact Ltd (G) is holding at third with a return of 10.49%. 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, the greatest disappointments this year are VeriFone Systems Inc. (PAY) at -32.83%; Fusion-IO, Inc. (FIO) at -22.62%, and Compagnie Generale de Gephysqu Vrts SA. (CGG) at -21.21%.

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 describe in the book, Reputation, Stock Price, and You (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 2013.

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.

JC Penny: Basement, no bargain

C. HUYGENS - Friday, March 15, 2013
If the owning the news cycle is the goal of public relations, JC Penny (JCP) needs a new shop. As Business Insider reports, "The retailer  has been on a terrible run. The last few weeks have been disastrous: it reported horrific Q4 earnings, went to court to fight Macy's over Martha Stewart, and had a board member dump a chunk of his stake." Caribou coffee opted not to open cafes in the stores.

Tally the butcher's bill: unnecessary litigation, abandonment by equity investor insiders, abandonment by partners, and no shortage of negative media chatter. It's a classical reputational value crisis.  Here's a link to how the Society's Mission Intangible Monthly Briefing moderator, Jonathan Salem Baskin, described the situation qualitatively to CNBC today: Baskin on CNBC.

Here's how the Steel City Re Reputational Value Metrics describe the situation quantitatively. Relative to 24 companies in the Retail Trade/Department Store sector, JCP has had the most volatile reputational value this year (Historic RVM Vol) indicating no consensus of expectations at one point in time. JCP now has the least volatile reputational value (Current RVM Vol) indicating that stakeholders are now in the tightest concensus about prospects. Unfortuanately, those prospects are awful with a CRR rank in the 9th percentile and the worst performing equity with an ROE of -60%. Worst, there is still room to fall and the metrics all indicate a further downward trend and low expectations for stability.

In his interview, Baskin suggested JCP should focus on its reputation. Expectations were very high when Ron Johnson, formerly of Apple, came aboard as CEO. They were at levels that could not possibly be met, and that is why the market is now punishing JCP (and for that matter, Apple). As Baskin said, "It breaks my heart."


Program - 29 March 2013 - Register Now

C. HUYGENS - Thursday, March 14, 2013

Briefing Friday 29 March at 10h00 ET

Program: Compliance: Is a goody-two-shoes reputation valuable?

In Billy Joel's New York, only the good die young. In post-Lehman New York, do the good have better prospects? When analysts make stock recommendations on the basis of environmental, sustainability and governance, factors, is there value in compliance? And what is one to make of the fact that fully half of the ten largest federal corporate criminal fines in history were imposed or agreed to in 2012.

Joining our conversation are Joan E. McKown, Partner, Jones Day and formerly the longtime chief counsel of the Division of Enforcement at the SEC; 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.. It's free. Register now.

Yum: Tasting better

C. HUYGENS - Wednesday, March 13, 2013
Whether the market rewards or punishes a company depends on what the market expects, according to the book Reputation, Stock Price and You. This week's news on YUM! Brands is illustrative.

From Reuters, good news as sales only fell 20% as a result of the toxic chickens disclosure.

KFC parent Yum Brands Inc reported an unexpected 2 percent rise in February sales at established restaurants in China, boosted by Chinese New Year and easing worries about a food safety scare that drove away customers. Shares in Yum jumped 6.6 percent in extended trading to $72.32, their highest level since November, after the results were far better than the estimated 8.7 percent drop expected by three analysts polled by Consensus Metrix. Yum also said on Monday first-quarter same-restaurant sales in China fell 20 percent, less than its prior forecast for a 25 percent drop.


Also from Reuters, more good news as Chinese appear to be less overtly angry -- or at least they're not talking about it.

Chinese consumers' anger at KFC over a food safety scare has abated as the number of negative posts about the fast food chain owned by Yum Brands Inc on the country's most popular microblogging platform fell by two-thirds. China's half a billion microbloggers posted 3 million overwhelmingly negative comments about KFC in the month that began on Dec. 18, when state media started reporting on the scare over contaminated chicken, a Reuters review of data from the Twitter-like platform Weibo shows. The number fell from Jan. 18 to Feb. 18, but microbloggers still posted more than 1 million comments on KFC, indicating that the largest foreign fast food chain in China still has its work cut out for it as it tries to reverse a steep sales slide.

The Steel City Re reputational value metrics provide an integrated view of expectations and the economic consequences of the behaviors arising. The data on YUM show that the company's arch rival, McDonald's (MCD) has benefited from the turmoil. By all of the reputational vital sign measures, MCD advanced. Both companies are at the low end of the spectrum of historic RVM volatility. RVM is a non-financial measure of reputational value. The absolute measures are in the 4-5% range, which on an actuarial basis place YUM at an imperceptibly  higher risk of material future market value loss. The current RVM volatility of MCD is also greater than YUM and is attributable in part to the significantly greater rise in ROE. The levels for MCD and YUM on the former measure both suggest a better than average future course. On these two measures, as well as the CRR, a measure of relative reputational ranking, MCD has benefited from YUM's slide. Going forward, the data suggest that many customers will come back. It is not clear, however, if equity investors are not getting to far ahead --  a variation on a parent's admonition take care lest one's eyes turn out to be bigger than one's stomach.

Amazon: A greater distance to fall

C. HUYGENS - Tuesday, March 12, 2013
Amazon.com (AMZN) recently emerged as the company Harris Interactive ranks as having the best reputation in 2012 among the general public in the U.S.  As Mark Hulbert explains in the Wall Street Journal, "companies that have great reputations tend to be overvalued." The implication is that Apple's fall from grace is the norm, not the exception, and Hulbert backs the claim with several academic studies. Part of the problem, as readers of this blog and the book, Reputation, Stock Price and You, already appreciate, is that the reputational rankings published by Harris Interactive, the Reputation Institute, and others are weakly associated with stock price because:

1. The surveys have several organic challenges
   a. They survey consumers, not necessarily investors.
   b. Historic return on investment is a factor in their reputation rating; by the time a survey is published, a company may be fairly or even over priced
   c. Rather than surveying reputation, which is a going forward expectation that will better correlate with stock price, Harris and others are actually surveying brand affinity. (These "reputation" rankings best correlate with brand recall studies).

2. Rankings do not correlate well. One of the best surveys is published by Barron's. This survey asks money managers to rank firms on the basis of respect. In 2012, the reputation rankings from Harris and the rankings from Barron's showed a 72% correlation. (The rankings from the Reputation Institute and Fortune Magazine's Most Admired companies showed a correlation of 21%.)

3. Reputational value is measurable. But surveys are not the best measurement tool if one is interested in financial reward or risk; i.e., finding stock-picking opportunities or insuring reputational value loss.

Turning to Amazon and the reputational value rankings from Steel City Re, which are based on stakeholder expectations and the behaviors that are expected to create value, the reputational vital signs show consistent top quartile rankings among the 21 companies in the internet retail sector. The historic RVM volatility, a measure of the tightness of the range of stakeholder expectations is great ranking in the 85th percentile. This indicates there were many stakeholders who were going to be surprised by Amazon's performance. The current RVM volatility shows that they are still being surprised, and the resulting ranking, the CRR, is tops. RVM is a non-financial measure of reputational value while CRR is a measure of reputational ranking - call it the reputation premium.

Interestingly, the ROE is not at the top, which reflects the pessimism of some equity investors who, as part of the overall group of stakeholders, are voting with their shares. The other measures shown below indicate an ongoing pattern of high RVM volatility, metrics that place Amazon in the extreme of various measures relative to its peer group, and values that all indicate greater than average risk of a 12-forward month risk of a 7.5% or more fall in market cap.


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