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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Reputation Value: School district edition

C. HUYGENS - Thursday, March 20, 2014
In the area of reputation risk arising from a failure in governance, controls and risk management in the public sector, a notable example was the public university in Happy Valley, Pennsylvania -- the Pennsylvania State University. Another notable example, discussed only yesterday, was the State of Illinois. Today, a school district in Texas. The Beaumont Independent School District (“BISD”) in Texas is in crisis.

Common to all: An operational crisis involving ethics, safety, or security; failure in governance and controls, and a long history of signs and symptoms that arguably were willfully ignored.

The Texas Education Agency has issued a 12-page report damning its finances, amidst reports that it paid one electrician $382,940 for materials that only cost $39,490, and that two senior officials may have embezzled $4 million...This is a classic reputation crisis, as the bad press is an outcome of underlying problems of governance and sustainability.

Read more.

Reputation Value: Sovereign state edition

C. HUYGENS - Wednesday, March 19, 2014
"In a market based on trust, reputation has value," noted Alan Greenspan, former chairman of the Federal Reserve, as Wall Street imploded.

Certainly reputation has value in the financial sector. In fact, the US Office of Comptroller of the Currency now recognizes reputation risk as one of eight sources of financial risk that institutions need to manage.

And reputation has value in public companies in general. Around two thirds of public company directors, and an equal number of public companies, disclose the materiality of reputation risk in their SEC filings (10K item 1A).

But what about the public sector? Does reputation impact budget line items in the public sector the same way it impacts line items in a public company’s P&L. Apparently, yes.

As far as state budgets go, Illinois has one of the worst, suffering from underfunded employee pension obligations and an economy that isn’t adding enough top-line cash. Its credit rating is the nation’s lowest, which means it’s considered the worst borrowing risk out of a list of 50 (and therefore pays the most for it).

But beyond this low credit rating, Illinois pays interest rates on its debt that are higher than the actual default risk that these ratings are designed to reflect. Illinois pays a reputation risk premium.

In a recent paper published by the University of Illinois' Institute of Government and Public Affairs, University of South Carolina professors Tima Moldogaziev and Martin Luby studied this reputation risk premium and found that it costs the state plenty. For bond sales between 2005 and 2010, they estimate that this reputation risk premium cost the state more than $80 million. That's $80 million over and above what the state should have been paying based on its worst-in-the-nation credit rating.

Read more.

RepuStars 2014 March 14

C. HUYGENS - Tuesday, March 18, 2014

Weekly Reputation Index Metrics


At the close of trading March 14, 2014, REPUVART and REPUVAR stood at 3513.86 and 2935.95 respectively. Over the past four weeks, the former has changed by 1.92%, while the latter has changed by 1.77%. The benchmark S&P500 Composite Index stood at 1603.66 (31 Dec 2001=1000) and has changed over the past four weeks by 0.14%. The current calendar year spread between REPUVAR and the S&P500 is -3.36%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 6.55% and 4.21% respectively; the S&P500 Composite Index has changed by 17.78%. The trailing 12-month spread between REPUVAR and the S&P500 is -13.57%.

Over the trailing 36 months, the REPUVART and REPUVAR have changed by 37.63% and 30.75% respectively; the S&P 500 Composite Index has changed by 43.63%.

The 4-week, trailing 12-month, and trailing 36-month returns for REPUSPX are 0.60%, 23.53%, and 86.14% respectively. The trailing 12-month spread between REPUSPX and the S&P500 is 5.75%.

The spreads between the S&P500-only index informed by reputation metrics, REPUSPX, and the broad market index informed by reputation metrics, REPUVAR, for the calendar year and for the trailing twelve months respectively are -0.20% and 19.32%.

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

Analysis

Bubble, bubble, bubble. On 9 March, the Financial Times quoted Seth Klarman, one of the world’s most respected investors, warning of the “potential for a brutal correction across financial markets.” Indicators of overvaluation, including Shiller’s Cyclically Adjusted Price/Earnings Ratio (CAPE) and Tobin’s Q Ratio are sending alert notices. And company insiders are bearish with February seeing the highest ratio of insider selling to buying in a year.

The behaviors of insiders is the most troubling. Shortly after John Morgan (JP, to his American friends) congratulated Andrew Carnegie on becoming the wealthiest man in the world, Carnegie's biographer queried the former steel magnate on his secret. "When I was younger," he replied, "I used to listen to what people say. Now I just watch what they do."

With all this froth, and bearish insider behavior, the greatest gains in the RepuStars Variety portfolio for 2014 year are being reported by Cavium (CAVM), which holds on to first place with returns of 27.04%. Right Aid Corp (RAD) returns to second with a 23.08% return year to date, and Caesar’s Acquisition (CACQ) moves into third with returns of 20.34%. These are three of the 41 firms identified by the RepuStars Variety algorithm at the start of 2014 as value opportunities.

As for those whose reputational value may have been overestimated, Rent-A-Center (RCII) falls back to last at -20.66% for the year, Staples (SPLS) drops another notch with returns of -17.64%, and Mobile TeleSystems (MBT) inches up to -16.14%.

Turning to RepuSPX whose constituents are limited to the S&P500 members, the top three performers in a portfolio of 31 names Ameren (AEE) at 13.63%, Walgreen Company (WAG) at 12.21%, and AutoNation (AN) at 10.80%.

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). These are the same metrics that power the reputation controls provided by Consensiv, and the league table of reputational value, the Consensiv 50,  published periodically, and most recently January 1, 2014, by CFO.com.

The RepuStars Variety Corporate Reputation Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click on the ticker names 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 18 Jan 2014.

REPUSPX  is a pocket index with portfolio constituents being selected algorithmically by the same criteria as the constituents for REPUVAR and REPUVART, except that the field of eligible companies is limited to constituents of the S&P500 composite equity index.

The strategy used to pick the constituent members of REPUSPX, REPUVAR and REPUVART is discussed in the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012). (Link below)

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

S&P Dow Jones Indices is a registered trademark of S&P Dow Jones Indices LLC, a part of McGraw Hill Financial; 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 McGraw Hill Financial and its affiliate (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 McGraw Hill Financial 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.

Brand v. Reputation: NJ Edition

C. HUYGENS - Friday, March 14, 2014
An opinion survey's purpose is to discover what respondents think, not to influence or alter it. Actually, beyond "think," the real purpose is to obtain an indication of how the respondents will behave; e.g., vote for a candidate or buy a branded product. The problem with surveys is that what people think about candidates or brands is not necessarily an indication of what people will do about a candidate or product. The "moment of truth" can be shocking when expectations fed by opinion surveys are dashed by the realities of behavior as was demonstrated so vividly by Karl Rove in the 2012 US Presidential election.

Brands are about emotions and connections; reputations are about behaviors. To wit, A mere 38 percent of voters in New Jersey approve of Governor Chris Christie's post-Sandy efforts, more than half find him culpable for "Bridgegate," and yet 90 percent of respondents to a survey said they would vote for him again. So how badly damaged is the Governor's reputation?

Read more.

GM: In German, the word is "shitstorm"

C. HUYGENS - Wednesday, March 12, 2014
In the UK's Financial Times, the escalating events following public disclosure of an adverse situation have been described as "the pile on of litigators, regulators and mommy bloggers." The Germans invented a new word, "shitstorm." Whatever you call it, GM's failure to learn from Ford's Pinto is providing another generation with an object lesson in reputation risk - failing to meet the expectations a company has set among stakeholders.

Federal prosecutors are examining whether General Motors is criminally liable for failing to properly disclose problems with some of its vehicles that were linked to 13 deaths and led to a recall last month…The federal probe by the U.S. attorney in Manhattan adds to a growing list of U.S. authorities examining the recall, which GM announced in February. The National Highway Traffic Safety Administration (NHTSA) previously opened an investigation into whether GM reacted swiftly enough in its recall….a U.S. Senate committee chairman is seeking a hearing on the issue. The U.S. House Energy and Commerce Committee also ordered GM and NHTSA to turn over information about GM's ignition switch problems.

GM declined to comment on yesterday as shares of GM closed down 5 percent to $35.18 on the New York Stock Exchange. "The immediate financial impact is insignificant; however, there could be some reputational risk which could impact share," RBC Capital markets analyst Joseph Spak said.


Here's another object lesson. For those who are still confusing brand with reputation (Brand v reputation, GM Impala edition), consider this from Steel City Re, a provider of reputation assurance solutions.

A 21st century reputation is testament to how stakeholders expect a company to behave. It includes responsible behaviors such as supply chain integrity; manufacturing or production quality; ethical standards; innovation and intellectual property management; environmental sensitivity; and security management. It specifically includes C-suite and Board-level behaviors including governance, controls and risk management policies. Reputation risk arises when a company fails to properly set expectations or fails to meet them. Stakeholder disappointment at such shortfalls can have significant personal consequences for the company’s Directors and Officers; and it can result in potentially unlimited costs of damaged stakeholder relationships going-forward.

Reputation Risk is a strategic risk.

Read more from Reuters.

ExxonMobil: Much better than Paula Deen

C. HUYGENS - Tuesday, March 11, 2014
"Reputations are created and sustained by ongoing activities," explained Jonathan Salem Baskin, managing director of the reputation controls firm, Consensiv, in Forbes.com this past weekend. "Crises are simply the exposure of those behaviors." To illustrate the point, on parade were Paula Deen and ExxonMobil (XOM).

Deen took it in the chin for revelations of social improprieties, and according to Baskin, was sunk by her own PR-driven crisis communications efforts. "The premise that PR can “manage” those revelations is evidence of a misunderstanding and governing weakness [of PR]. Corporate reputation doesn’t belong to PR any more than the pixels on my computer screen belong to electricity."

ExxonMobil coated a good part of Arkansas in ooze last spring. The company managed the potential reputational impact through ongoing communications before the event -- the communications being largely an explanation of what they were actually doing operationally to minimize the risk of coating Arkansas and many other dry and wet places with black slime. "Successful reputation management requires ongoing communications, not a plan to “manage” crises."

Manage expectations, perform to those expectations, and reputation will be affirmed. So goes the theory. What do the reputational value metrics show emprically?

The reputational value profile of ExxonMobil, according to Consensiv and based on Steel City Re's reputational value metrics, is shown below. The Reputation Premium is near the top of the heap at the 94th percentile currently among 50 companies in the peer group. That's down a bit from the 100th percentile last spring, but from the chart it appears that the #1 slot changes hands regularly. The Consensus Trend, CT, is at a respectable level of below 3% and compared to peers, is about average. Its reputational health is strongly independent of the overall equities market and, while there is room for improvement, it's looking much better than Deen.



For more background on the Consensiv reputation controls, click here. To view the December 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here. Last, to read more about how reputational value is linked to stakeholder expectations and enterprise value, read, Reputation Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012) (click here).

Ebay: Icahn is cranky

C. HUYGENS - Monday, March 10, 2014
Last week, activist investor Carl Icahn opined that Ebay was the worst governed company, ever. A small discussion broke out on the LinkedIn Board and Advisers site.

Icahn is entitled to his opinions. What do the reputational value metrics show emprically?

The reputational value profile of Ebay (EBAY), according to Consensiv and based on Steel City Re's reputational value metrics, is shown below. The Reputation Premium is near the top of the heap at the 98th percentile currently among 66 companies in the peer group. The Consensus Trend, CT, is at a respectable level of 3.2% and compared to peers, is below average. When the reputation premium is high, a low CT is good. Ebay's reputational value shows an average correlation with the broad market;  overall, it is rather healthy.

The data suggest that as far as most stakeholders are concerned, Icahn being a noisy exception, Ebay is doing just fine at setting and meeting expectations. Its stakeholders clearly appreciate and value the performance.



For more background on the Consensiv reputation controls, click here. To view the December 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here. Last, to read more about how reputational value is linked to stakeholder expectations and enterprise value, read, Reputation Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012) (click here).

RepuStars 2014 March 7

C. HUYGENS - Sunday, March 09, 2014

Weekly Reputation Index Metrics


At the close of trading March 7, 2014, REPUVART and REPUVAR stood at 3567.61 and 2982.34 respectively. Over the past four weeks, the former has changed by 6.00%, while the latter has changed by 5.87%. The benchmark S&P500 Composite Index stood at 1635.81 (31 Dec 2001=1000) and has changed over the past four weeks by 4.51%. The current calendar year spread between REPUVAR and the S&P500 is -3.84%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 9.50% and 7.14% respectively; the S&P500 Composite Index has changed by 21.61%. The trailing 12-month spread between REPUVAR and the S&P500 is -14.47%.

Over the trailing 36 months, the REPUVART and REPUVAR have changed by 37.75% and 30.88% respectively; the S&P 500 Composite Index has changed by 42.08%.

The 4-week, trailing 12-month, and trailing 36-month returns for REPUSPX are 3.91%, 28.13%, and 82.98% respectively. The trailing 12-month spread between REPUSPX and the S&P500 is 6.52%.

The spreads between the S&P500-only index informed by reputation metrics, REPUSPX, and the broad market index informed by reputation metrics, REPUVAR, for the calendar year and for the trailing twelve months respectively are -1.48% and 20.99%.

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

Analysis

Ditto. Notwithstanding the minor kerfuffle in Crimea, the western economies are looking stronger and the others are not. The bond market is no place for old men seeking returns that will sustain their pension funds, and so it goes. Equity indexes are riding high, and a rising tide tends to lift all ships.

The greatest gains in the RepuStars Variety portfolio for 2014 year are being reported by Cavium (CAVM), which holds on to first place with returns of 27.32%. Veolia Environnement SA. (VE) jumps into second with returns of 18.30, and Right Aid Corp (RAD) slips back to third with a 17.35% return year to date. These are three of the 41 firms identified by the RepuStars Variety algorithm at the start of 2014 as value opportunities.

As for those whose reputational value may have been overestimated, Mobile TeleSystems (MBT) is down further at -20.16%, Rent-A-Center (RCII) claws back 1% to a net -19.84% for the year, and Staples (SPLX) falls into the basement with returns of -17.35%.

Turning to RepuSPX whose constituents are limited to the S&P500 members, the top three performers in a portfolio of 31 names are Walgreen Company (WAG) holding onto first at 12.22%, AutoNation (AN) at 11.36%, and Ameren (AEE) at 10.28%.

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). These are the same metrics that power the reputation controls provided by Consensiv, and the league table of reputational value, the Consensiv 50,  published periodically, and most recently January 1, 2014, by CFO.com.

The RepuStars Variety Corporate Reputation Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click on the ticker names 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 18 Jan 2014.

REPUSPX  is a pocket index with portfolio constituents being selected algorithmically by the same criteria as the constituents for REPUVAR and REPUVART, except that the field of eligible companies is limited to constituents of the S&P500 composite equity index.

The strategy used to pick the constituent members of REPUSPX, REPUVAR and REPUVART is discussed in the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012). (Link below)

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

S&P Dow Jones Indices is a registered trademark of S&P Dow Jones Indices LLC, a part of McGraw Hill Financial; 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 McGraw Hill Financial and its affiliate (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 McGraw Hill Financial 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.

GM: Lessons lost from Ford's Pinto

C. HUYGENS - Friday, March 07, 2014
Just the other day, Huygens was explaining how short-term investments in safety can avert long-term reputation damage. The reasoning is simple: if stakeholders understand and appreciate that you value safety by actually doing something about it, then they'll give you the benefit of the doubt if and as when an adverse event occurs. Being a beneficiary of doubt is especially valuable to corporate officers and board members who are the first to be blamed when things go bad. It's the time when grown men and women wish they could get their lives back.

The poster child for excellence in reputation management through operational risk mitigation was…Warren Buffett's Berkshire Hathaway, which had invested $600m in new, safer rolling stock to transport volatile petrochemical products. The current rolling stock catches fire too easily.

To underscore the value of Buffett's investment, the poster child for wrong thinking was presented in contrast. The logic behind the acceptable losses for Ford's Pinto and its exploding gas tank was enabled by bad math. Sure, the costs in lives lost, after insurance, was less than the costs of recall. Nobody thought to factor in the cost of lost reputation -- the costs when stakeholders don't want to buy any of your cars, employees don't want to work for you, suppliers are thrilled being associated with you, the capital markets look at you funny, and the regulators come down hard.

Alas, lesson lost. It appears malfunctioning ignition switches have flummoxed GM engineers for over a decade, even as they resulted in 31 fatalities in Chevy Cobalts. Only last week did the company expand its recall of impacted cars to almost 1.5 million units. The government has initiated a probe into how GM has handled its investigation. GM North America President Alan Batey said in a statement. ‘The chronology shows that the process employed to examine this phenomenon was not as robust as it should have been.’”

Read more.

Yahoo: Reputation by the numbers

C. HUYGENS - Thursday, March 06, 2014
Ken Goldman, CFO of Yahoo, was answering a question about the company's nagging human resource problem. ”When we came to the company, and we talked about acquisitions…frankly, companies did not want to be acquired by Yahoo…and for us to even acquire them we would have to pay a ‘Yahoo premium’ because they didn’t want to come here. That’s not the case any more.”

According to Yahoo's chief numbers guy, Marissa Mayer fixed Yahoo's #1 problem. Unfortunately, the actual numbers suggest otherwise. For while the annual report indicates Yahoo received in 2013 more than double the number of job applications it received in 2012, the applicants appear to be following the money. According to the career site Glassdoor, Yahoo was the third-highest-paying company in Silicon Valley for engineers last year, behind Juniper Networks and LinkedIn.

There's a reputation value link to this, and just like a recent note on Warren Buffett, it tracks back to costs. The thing about being a company with a great reputation is that this intangible asset usually provides savings on human resources costs. If a company has to pay an objectively measured premium to recruit employees, then the company's reputation (among labor) is not great.

CFO's should know better than to speak against their numbers. They're supposed to trust numbers - the same numbers trusted by the capital markets. Numbers are spin-free objective measures. It's the point Theodore Porter makes in his book, Trust in Numbers. Numbers are most trusted in environments where elites are weak, where private negotiation is suspect, and where trust is in short supply.

Let's look at some more Yahoo numbers. Yahoo is trading at 31 times earnings, just behind Google's 34x and way ahead of Microsofts' 14x. Those numbers are trustworthy, and they say investors have very high expectations -- arguably, frothy.

The expectations of other stakeholders are reflected in reputation metrics. Like other trusted numbers, they're based on objective quantitative criteria. The good news for Yahoo's stakeholders is that the 85th percentile ranking for the Reputation Premium among 137 peers indicates plenty of upside. It also may indicate that the reputation is not as strong as it could be for a company this prominent, and may explain the salary premium the company has to pay. (Paying top dollar and not making the 50 best places to work says all that another way).  The 4.0% value for the Consensus Trend, CT, suggests that stakeholders are fairly confident that Yahoo's reputation is properly valued.

The upside, therefore, is less likely to be realized, and that will disappoint the equity investors.



For more background on the Consensiv reputation controls, click here. To view the December 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here. Last, to read more about how reputational value is linked to stakeholder expectations and enterprise value, read, Reputation Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012) (click here).

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