It’s been a heady week for Standard & Poor’s, the rating agency that is a division of McGraw Hills Companies (NYSE:MHP). All that publishing work -- known in the industry as practicing first amendment rights to opine on the credit rating of both sovereigns and companies -- has evoked a not insubstantial amount of press attention. This is not necessarily good. Former EF Hutton CEO Robert Rittereiser, an authority on financial turnarounds and reputational crises notes, "On Wall Street, the probability of an entity retaining its wealth is inversely proportionate to the amount of coverage it receives in the Wall Street Journal."

Turning the the sources of this week's press attention, in the event that you have just been let out of jail or have moved to the planet earth from elsewhere, scores of companies and entities saw their credit ratings hit Monday after S&P downgraded the United States. Interesting, reports AFP (Aug. 8), the ratings agency did not downgrade commercial banks, especially the four largest seen as resting on the implicit "too big to fail" policies of the government. As the impact of its cut of the US rating from triple-A to AA+ began to hit markets, S&P announced that numerous government-related enterprises like Fannie Mae and Freddie Mac were likewise downgraded because they depend on the government's guarantee of their own bonds. Seventy-three investment funds -- fixed-income funds, exchange-traded funds, hedge funds, and others -- were downgraded, 70 of them by two notches, because they each had "significant exposure" to U.S. government debt. Ten insurance companies were hit, five with downgrades to AA+, including TIAA, USAA, and Northwestern Mutual, for their huge holdings of Treasury securities. Five others, including Berkshire Hathaway, the investment vehicle of billionaire Warren Buffett, kept their AAA ratings but were given negative outlooks.

The value-sapping blow back began shortly thereafter as many critics began to express doubt over the value proposition underlying S&P's core business model. "Credit ratings are becoming irrelevant in a bond market where investors still perceive AAA companies from Johnson & Johnson to Microsoft Corp. to be a higher risk than recently downgraded U.S. Treasuries," reports Bloomberg (Aug. 11, Detrixhe, Faux). After the U.S. was downgraded to an AA+ rating by Standard and Poor's, the extra yield investors demand to own bonds issued by top-rated companies versus Treasuries reached 0.81 percentage point, the most since July 2010, according to Bank of America Merrill Lynch index data. The wider spread suggests that investors still believe the highly-rated companies are a bigger credit risk.

There's more. As we have often noted, the real effects of a reputational crisis become apparent when regulators take interest. As evidence that the full "pile on of regulators, litigators and mommy bloggers" has set on Standard & Poor's, the SEC reportedly has asked the credit rating agency to disclose who within its ranks knew of its decision to downgrade US debt before it was announced last week, as part of a preliminary look into potential insider trading, the Financial Times (Aug. 12, Scannell) reports. The inquiry was said to have been made by the SEC's examination staff, which has oversight of credit rating firms. The exam staff can make referrals to the SEC's enforcement division if it believes any laws have been violated, but the inquiry might not result in a referral. Proving someone leaked information about the downgrade, or traded ahead of it, could be challenging. Many traders anticipated the downgrade and bets could occur across numerous securities or currencies without inside information.

S&P's reputation was tarnished during the great crash of 2008 when it became apparent that many of the complex structured products it had rated as AAA were much riskier. That story, as you know, has not yet played out fully. The numbers suggest that S&P's reputation was making a comeback until recently. According to the Steel City Re Corporate Reputation Index, McGraw Hills Co's ranking twelve months ago ranked in the 25th percentile among a peer group of 12 companies in the publishing/services business. That ranking peaked at the 60th percentile, only to drop over the past few weeks to the 36th percentile.

The company's exponentially weighted moving average ranking volatility peaked at almost 200%; its downward curve was arrested this past week as both the velocity and vector affirmed negative trends of -18% and -3.9% respectively.

The company's current return on equity (ROE) over the trailing twelve months is 25%. That is unlikely to persist as the reputational volatility grows for the reasons discussed above. On the basis of reputational metrics alone, this is not a stock to own. Expect a takeover with managerial overhaul -- a strategy that many wish would be realized by News Corporation, too.