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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Harvesting Intangibles. MIMB Program 28 June 10h00 ET

C. HUYGENS - Tuesday, June 18, 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.

RepuStars 2013 June 15

C. HUYGENS - Monday, June 17, 2013

Weekly Reputation Index Metrics


At the close of trading June 14, 2013, REPUVART and REPUVAR stood at 3364.62 and 2849.19 respectively. Over the past four weeks, the former has changed by -3.49%, while the latter has changed by -3.69%. The benchmark S&P500 Composite Index stood at 1416.91 (31 Dec 2001=1000) and has changed over the past four weeks by -2.44%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 26.91% and 24.36% respectively; the S&P500 Composite Index has changed by 22.39%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 62.35% and 54.76% respectively; the S&P 500 Composite Index has changed by 45.86%.

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

Analysis

Europe, if one is to believe the financial news, is slowly on the mend while the US’s economy is perhaps not as robust as the markets would suggest. This is good news for RepuStars which has indicated that the past few months of S&P500 performance were more froth than substance.

In bubbles, the RepuStars algorithm has successfully found the “best opportunities in the bubble” based on implicit arbitrage linked to the reputational metrics. 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 substantially ahead of the market index for the calendar year by 10.91% this week at 23.04%. Its trailing twelve-month returns of 35.66% are beating the market by 13.27%.

RepuStars increased its spread loss. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME) which holds on to first place with returns of 57.30%, Wellpoint Inc (WLP) which holds onto second place with returns of 31.83%, and Bed Bath & Beyond which returns to third place with year to date returns of 24.90%. 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, scandal-plagued VeriFone Systems Inc. (PAY) plunges further to a loss of -48.78%, Fusion I-O, now sans its founders, is down at -38.06% Royal Gold Inc. (RGLD) is down -33.22%.

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.

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.

Grainger: Profile of a Consensiv 50 constituent

C. HUYGENS - Tuesday, June 11, 2013
The CONSENSIV 50, published monthly, is the first-ever ranking of global leadership in reputational value based on stakeholder behaviors with measurable financial consequences. The ranking provides a number of new perspectives on corporate governance and are based on a decade of data on 7000+ companies that are the underpinnings of Steel City Re’s reputational value insurances and the S&P Dow Jones RepuStars Variety Corporate Reputation Index (Ticker: REPUVAR), the world’s only reputation-linked composite equity index*.

These data are objective financial measures, such as premium pricing, supplier and vendors terms, labor relations and productivity, and borrowing costs. The resulting insights have proven to be deep and reliable tools to measure the outcomes of corporate governance.

W. W. Grainger is a constituent of both the May and June 2013 league tables. The metrics indicate Grainger is a great company. Non-quantitative measures concur. Seeking Alpha writes, "W.W. Grainger (GWW) is one of the best performing companies in the United States. It's reputation within its industry is outstanding amongst its employees, suppliers, customers, and even competitors. More importantly for shareholders, it has demonstrated the ability to generate returns."

Looking at the metrics of this Consensiv 50 constituent member in greater detail, the company's CRR, a relative ranking of reputational value relative to the 70 peer companies in the Wholesale Distribution sector, is at the 100 percentile. It is a company that, in the words of Consensiv, is maximizing its Reputational Premium. Furthermore, there appears to be a general consensus that this is deserved. The current RVM volatility, the Consensus Trend, a measure of reputational value uncertainty, is in the 2nd percentile. It doesn't get much lower, or much better.

Noble Energy: NBL is NGE

C. HUYGENS - Monday, June 10, 2013
The energy sector is hot.  Sure, its chief product is combustible or otherwise exothermically inclined. But, in a financial sense, the reputation of the sector  -- the economic benefits to energy sector companies arising from the social contract between them and their stakeholders -- is equally feverish

Body temperature, as most everyone knows is a measure of health. It is one of a handful of vital signs that serves as an early indicator of a health problem.

Equally so, fever is an indicator of a reputational health problem. The measure of reputational fever is the Consensus Trend, technically, an exponentially weighted moving average volatility of the company's reputational value metric. Causes of reputatational value fever include:

Unexpected CEO change
Conspicuous shareholder activism
Poor M & A decisions
Poor safety record
Loss of investment grade credit rating
Inability to access capital at competitive rates
Poor fleet utilization
Concentration of assets
Poor Return on Capital and Allocation decisions

Noble Energy, the top ranking energy sector firm in the June 2013 Consensiv 50 rankings, has been spiking a fever ever since the monthly rankings were released. Mind you, Noble didn't actually place in the top 50. It ranked around 200, but received notice in that it topped the league table for its sector which is generally having reputational value problems.

In the two weeks since Noble Energy was recognized, it's come down with a fever. Actually, it is both spiking a fever and losing reputational value, what Consensiv terms its Reputational Premium.  The Vital Signs chart (top row, left) shows that Noble Energy's reputation ranking has slipped from the #1 position among its peers to the 94th percentile. Its current RVM volatility is in the 77th percentlle among the 191-members of the Oil and Gas Production sector peer group. The fever spike is best seen in the Current RVM Volatility chart (top row, right). RVM is a non-financial measure of reputational value calculated by the reputational value insurer, Steel City Re. Values in excess of 7% are associated with, or are leading indicators of, material changes in market capitalization. High values reflect a lack of stakeholder consensus. Over the past two weeks, Noble has spiked to 15%.

Here's how financial analysts view the company, as summarized by Watchlist News:

Noble Energy (NYSE: NBL) had its price target cut by Barclays Capital from $140.00 to $70.00 in a research report sent to investors on Tuesday morning..A number of other firms have also recently commented on NBL. Analysts at Raymond James upgraded shares of Noble Energy from a market perform rating to an outperform rating in a research note to investors on Thursday, May 30th. Separately, analysts at JP Morgan Cazenove downgraded shares of Noble Energy from an overweight rating to a neutral rating in a research note to investors on Thursday, May 30th. Finally, analysts at TheStreet reiterated a buy rating on shares of Noble Energy in a research note to investors on Friday, May 24th. One investment analyst has rated the stock with a sell rating, eight have given a hold rating, twenty-two have issued a buy rating and two have assigned a strong buy rating to the company’s stock. Noble Energy currently has an average rating of Buy and an average target price of $107.13.

The analysts are confused. So are other stakeholders. The balance of the reputational measures, shown below, point to a negative future. Noble Energy, ranked at 200, may have been the best of the energy sector. But NBL, as it is known by its ticker, is apparently NGE (Not Good Enough).



Drilling: Move along now, nothing to see here

C. HUYGENS - Sunday, June 09, 2013
For the hard of hearing, the professional media and independent blogosphere helpfully offer signal amplification. Wag the Dog’s Robert DeNiro knows of what he speaks when he insists, “It must be true. I saw it on TV.” Conversely, there are believers in the existential paradox that if something happened, and know one hears about it, etc. (If a tree falls in the forest…).

Huygens, who minored in the philosophy of science, and is an American Pragmatist, is less of a believer and more of an observer. Yes, the tree may have fallen and not been heard (by a human). But just as chaos theory posits that a butterfly can trigger a hurricane, the falling tree can trigger secondary and tertiary reactions. Even without the media, these effects can amplify the consequences of an event.

Consider, then, the efforts by the gas drilling industry to keep a problem under wraps, as Bloomberg’s 7 June headline suggests: "Drillers Silence Fracking Claims With Sealed Settlements." With no more success than officer Frank Drebbin, and in no way to argue the merits of the underlying claims, the industry’s efforts to mute awareness is enhancing interest and, critically, reputational value uncertainty. Observably, the net cost is heavily discounted enterprise value.

Consensiv, the reputational value consultancy, has determined that when uncertainty in a company’s reputational value as measured by its exponentially weighted volatility, or as Consensiv calls it, its Consensus Trend, exceeds 7%, material value changes are just over the horizon. Basically, the Consensus Trend is an indicator of reputational health.

As of 7 June, more than 25% of the 191 companies comprising the Oil & Gas Production peer group were febrile with Consensus Trend values in excess of 10%. As a result, the entire sector is experiencing reputational value suppression, reduced Reputation Premium in Consensiv’s language, as measured against the 7200 companies for whom weekly reputational value metrics are available.

Silenced, perhaps, but not unobserved.

RepuStars 2013 June 8

C. HUYGENS - Saturday, June 08, 2013

Weekly Reputation Index Metrics


At the close of trading June 7, 2013, REPUVART and REPUVAR stood at 3368.04 and 2852.09 respectively. Over the past four weeks, the former has changed by -2.19%, while the latter has changed by -2.38%. The benchmark S&P500 Composite Index stood at 1431.42 (31 Dec 2001=1000) and has changed over the past four weeks by 0.59%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 25.23% and 22.69% respectively; the S&P500 Composite Index has changed by 23.97%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 72.97% and 64.82% respectively; the S&P 500 Composite Index has changed by 54.74%.

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

Analysis

It’s June 2013, and the world’s equity markets are gaming the central bankers at an unprecedented level. The issue is quantitative easing and the cost of capital. Most anyone betting on economic fundamentals is losing. Earlier, it was sovereign debt. Over the past month, the junk bond market capitulated. Ed Marrinan, head of macro credit strategy at RBS, explained to the Financial Times why high-yield bond fans had all deserted the sector at once. “When the market lacks clarity, when it lacks consensus, that is when you end up with volatility and that takes its toll on risk assets.” True, but when there is pressure to perform, the safest risk assets are those that are indexed. And so the major market indices are rocketing on the basis of demand for their securities rather than confidence in the underlying drivers of value. That’s a bubble.

In bubbles, the RepuStars algorithm has successfully found the “best opportunities in the bubble” based on implicit arbitrage linked to the reputational metrics. 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 7.64% this week at 18.82% ROI for the year. Its trailing twelve-month returns of 33.93% are beating the market by 8.96%.

RepuStars, plagued by a few companies that have greatly disappointed stakeholders, increased its spread loss. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME) which holds on to first place with returns of 48.19%, Wellpoint Inc (WLP) which holds onto second place with returns of 30.53%, and Genpact Ltd (G), which moves up to third place qith year to date returns of 22.22%. 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, scandal-plagued VeriFone Systems Inc. (PAY) plunges further to a loss of -44.57%, Fusion I-O, now sans its founders, is down at -36.52% Royal Gold Inc. (RGLD) is down -32.32%.

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.

It Depends: Measuring the measures of reputation

C. HUYGENS - Thursday, June 06, 2013
Ask someone to explain the meaning of the word, ‘reputation,’ and you will learn much about their world view. The same goes for institutional reputation reports, as the book, Reputation, Stock Price, and You (Apress, 2012) demonstrated. Not that the discrepancies of world view were necessarily material when the sole owners of corporate reputation lived in the marketing department. But now that the centrality of reputation is recognized at the highest levels of a company, measuring reputation for the purpose of managing it takes on greater importance.

It is therefore significant that the trends of non-correlated indicators of reputation observed last year between measures published by the Reputation Institute, Harris Interactive, Fortune/Hays, and Steel City Re (now with Consensiv) carry over into this year. The Reputation Institute's REPTRAK report is one of the three major reputation reports announced annually in the spring. REPTRAK is around 7 years old. Harris Interactive, the market research company, publishes the HARRIS RQ. It's been around 14 years and spawned the REPTRAK report after a fallout between the executives of Harris and the founder of the Reputation Institute. Fortune Magazine has published for the past 30 years a ranking called "The World's Most Admired Companies" that they've produced with the human resources consultancy, Hay Group. They now call it a Reputation Ranking, since Reputation is the "hot business concept."

Contrasting these survey-based reports is Steel City Re's algorithmic measures of reputational value. It has a 12-year history, but unlike the three survey reports that are published annually, Steel City Re's metrics are published weekly. The timeliness of the data are why only Steel City Re's metrics are used to inform a range of financial products including hedge fund strategies, reputational value insurances,  a composite equity index (Ticker: REPUVAR) calculated and published daily by Dow Jones Indexes and reported by Huygens weekly, and the monthly Consensiv 50.

While the three major reports are based on public surveys, they use slightly different methods. Because the Harris RQ and Reputation Institutes REPTRAK had a common development path, they use a similar brand research-type approach. Using an online questionnaire, they invite members of the general public to rank companies well-known to the respondent. The Reputation Institute looks at 7 axes that their research shows correlate with an emotional bond: Products/Services, Innovation, Workplace, Governance, Citizenship, Leadership and Financial Performance. In 2013, 55,000 respondents completed the surveys. The Harris RQ looks at 6 axes and obtained data in 2013 from 4600 respondents. Both surveys were conducted in February/March.

The Fortune/Hay survey targets a more business-centric population. For the 2013 survey, the survey asked 3,800 executives, directors, and analysts to pick the best companies and rank them on 9 axes that have a business focus: Innovation, People management, Use of corporate assets, Social responsibility, Quality of management, Financial soundness, Long-term investment, Quality of products/services, and Global competitiveness.

Steel City Re's metrics, as readers of this blog know, algorithmically extract the reputational value created in the social contract with customers, employees, suppliers, investors, etc. The algorithms process public data comprising decision market expectations of sales, net income & equity future returns; financial efficiency measures, including gross, operating and net margins; balance sheet factors, including cash and book value; and measures that help group and normalize values, including outstanding shares and moving average weightings. The calculations consume about 8 minutes. To compare SCRe data with the three surveys, Huygens selected data from the week of February 28, 2013.

The four measures of reputation and/or reputational value following three different methods have always yielded a wide range of results. This should not be too surprising since the Harris and Reputation Institute methods were designed to yield data to help the marketing community benchmark brand awareness and brand recommendation; the Steel City Re methods were designed to yield data to help risk, financial, and governance executives manage enterprise reputational value; and the Fortune data helped identify executive talent (and probably helped Fortune sell advertising space). 

The 2012 book showed that  the various methods produced data with poor correlations. It is no different with the 2013 data. As in 2012, the greatest contrast is between the Reputation Institute and Fortune. In 2012, they showed only a 20% correlation. This year, the correlation measured at -2%.  In 2012, the Reputation Institute and the Harris Interactive data correlated at 94% which was reasonable given the similar methods. This year, they correlated only 62%. Looking at average cross-correlations among the four measures, Harris Interactive measured in at 38%, Steel City Re at 29%, Reputation Institute at 25%, and Fortune at 20%. Looking at the spread of cross-correlations, an indication of consistency, Steel City Re's measures showed the greatest consistency with the narrowest spread at 27%, Harris and Fortune were more divergent at 42%, and the Reputation Institute's REPTRAK showed the greatest scatter at 64%.

Procter & Gamble: Its all about reputation

C. HUYGENS - Sunday, June 02, 2013
Huygens was musing why Procter & Gamble invited AG Lafley to assume the helm of a ship he left four years ago. At that time, he turned over command to his hand-picked successor. “I am retiring with confidence in Bob McDonald and his team," said Lafley. "This is the right time to complete our management transition.” Yes, the ship has foundered since then, so there was cause for concern. More than concern, frankly.

But in a Columbo-like moment of angst, Huygens couldn't make the pieces add up. Lafley arguably left P&G in tough shape having gutted much of the organic R&D to the benefit of buying customers and markets. Lafley groomed his successor who leaves as a failure. P&G's management bench is deep and strong. And given the recent uproar over JPMorgan Chase's Dimon holding titles of both CEO and Chairman, one would have thought the board at P&G would have been reticent to offer Lafley not two, and certainly not three, titles.

And what of those who offered the invitation? P&G's board comprises some of the best of the best:  The CEOs include Boeing Co's James McNerney, Hewlett-Packard Co's Meg Whitman, American Express Co CEO Kenneth Chenault, and Macy's Inc CEO Terry Lundgren; Archer Daniels Midland Co CEO Patricia Woertz, Frontier Communications Corp CEO Maggie Wilderotter and former Mexico President Ernesto Zedillo. Now while it is true that some of the board members are struggling with major challenges on their home turf, they are consummate professionals and are not the type to "let matters slip." In fact, they are all A-type personalities unlikely to yield for convenience. Less, so, even, if under stress.

Huygens thinks he gets it. There was no obvious solution to the P&G problem. Some board members thought the problem was McDonald. Others that McDonald was dealt a bad hand. No critical mass could be built around a going-forward strategy. When one thinks about a board's duty -- picking the CEO, approving a strategy, and protecting the firm's assets -- it's tough in the midst of a crisis to pick a new a leader to execute a strategy that doesn't exist.

And this brings us to the crux of the matter. No corporate director ever wants to be accused of failing in his or her duties of care or loyalty by picking a CEO who can not win, a strategy that can not succeed, or in squandering valuable corporate assets -- in this case, Procter & Gambles own once-stellar reputation. For directors, it is a matter of personal reputation. There's no hiding. Think about the three directors at JPMorgan Chase who have been saddled with the London Whale event. Ellen Futter, David Cote and James Crown had only slim majorities of shareholder support at last month's Annual General Meeting. And we all know about it, because transparency is the new watchword. And as far as Huygens knows, P&G does not have Reputational Value Insurance to protect its Directors.

As the joke once went, "no one ever got fired for buying IBM," Huygens hypothesizes there was only one safe choice that a plurality of Directors could agree to back: AG Lafley. The road to Abilene went right past Lafley's front door.

Huygens values his opinion. He values the opinions, and wisdom of the crowds, even more. Turning to the Steel City Re measures of reputational value which capture the wisdom of crowds, the stakeholders are not letting their guard down. Since last week, just before the announcement of changes in command, the company's reputational ranking (Reputational Premium by Consensiv's name), CRR, sank another 2 percentile points relative to the 43 member-peer group to the 81st percentile. Its Current RVM volatility, a measure of overall stakeholder understanding (Consensus Trend, by Consensiv's name) remained elevated at the 73rd percentile, and in excess of 4.5%. In fact, Procter & Gamble, which was ranked #18 in the Consensiv 50 league table of the most valuable reputations among the largest firms in the world in May 2013, fell off the list completely in the June 2013 report.

More complicated measures of reputational value and trend paint an equally disconcerting image. Reputational value velocity is increasingly negative, the reputational value vector is approaching 0 from a negative incline, and both trend measures are negative.

P&G puts, anyone?



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.

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