MISSION INTANGIBLE

M:I Products

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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NFL: Reputation sacked again

C. HUYGENS - Tuesday, September 23, 2014
In the entertainment business Disney knows so well, managing reputation is a business imperative. The NFL has been sacked three times in as many years for reputation losses. Blame the Internet, if you will.

Warnings dating back to 2009 predicted that “hyper-transparency” enabled by the Internet would change the boundaries used to assess a company’s scope of control, and its degree of accountability and responsibility. Since then, stakeholder pass rushes have sacked the NFL thrice: for poor quality and greed, poor safety and greed, and now poor ethics and...greed?

Read more.

Ethics: Report slams US tobacco child labour

C. HUYGENS - Wednesday, May 14, 2014
Companies producing tobacco products have come to terms with society; in exchange for contributing to the tax bases of the reigning authority and relative transparency into the health effects of their products, they are accepted as commercial members in good standing. Alas, beyond safety, there are five other key issues that matter. One of them is ethics - child labor to be exact.

According to the Financial Times, a Human Rights Watch report on the US and the world’s biggest tobacco companies discloses young children are working 12 hour shifts in dangerous conditions. "The report highlights an area of reputational risk for an industry that is already spending billions of dollars a year complying with a patchwork of national and international regulations."

For companies now investing $millions into compliance solutions, the Human Rights Watch compliance standard should be disconcerting. Mere documentation of compliance standards is not good enough. Fostering conformance with compliance standards is, well, the new standard. “The burden falls on [the companies] to say that this isn’t happening on their farms.”

The report is not pure opprobrium, and credit is given for good effort. According to the Financial Times, "Human Rights Watch cited Philip Morris International, which sells Marlboro, L & M and Parliament outside the US, with creating 'the most detailed and protective set of policies and procedures' on child labour."

The credit given by HRW appears to mirror credit given by Philip Morris' other stakeholders. As shown in the reputation metrics below, the firm's Reputation Premium relative to its peers is top of the heap with the firm ranking #1 out of 13 companies in the Tobacco peer group. Not that PM should be complacent. The relatively high Consensus Trend indicates not all stakeholders are sure they know the company or agree on its reputation value. Some, perhaps not being used to compliments from HRW, may fear the news is too good to be true.

Read more

Novartis: Doctoring data

C. HUYGENS - Friday, April 11, 2014
For a company, a reputational crisis is the threat that stakeholders will fundamentally change their expectations. A crisis is often precipitated by the disclosure of what amounts to failures in controls in the areas of ethics, innovation, quality, safety, sustainability, and security. In this sense, as exemplified currently by Novartis in Japan, adverse media and the public relations noise that follows provide a window into the operational failure in ethical controls and falsified clinical trial records.

Read more.

CVS Caremark: Thank you for not smoking

C. HUYGENS - Friday, March 28, 2014
A few weeks back, CVS Caremark (CVS) caused quite a stir with this ethical shocker: the health retail chain was going to forgo $2 billion by no longer selling a family of anti-health products based on tobacco. The equity markets initially punished the firm; the reputation metrics according to Consensiv and based on Steel City Re's reputational value metrics, showed other stakeholders were bullish.  The Reputation Premium already at the top, stayed at the top. The Consensus Trend, CT, rose, along with that of the entire sector, so that CVS's relative positioning was unchanged. A shocker for the sector of all six drug store chains, indeed.

The equity markets have since figured it out. CVS has climbed 12.5% since 5 February while the S&P500 is up less than half that. CVS hit an all-time high on March 26th. The #2 sized firm, Walgreens, (WAG) is up almost 17%, down from its peak post-CVS announcement of 23%.

Experience shows that 20 weeks is a good window for recording major reputational changes after a shock. Usually, the shock is negative; here the shock is clearly positive. We'll be back.



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).

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.

CVS Caremark: Cares more?

C. HUYGENS - Thursday, February 06, 2014
Yesterday morning, CVS Caremark (CVS), the pharmacy healthcare provider, announced that it would no longer sell cigarettes effective October. The loss in revenue was projected at $2 billion which pundits quickly dismissed as an insignificant loss relative to the reputational value gain. It was an ethical move, clearly signaled so that the market could appreciate and value it.

By removing tobacco products from our retail shelves, we will better serve our patients, clients and health care providers while positioning CVS Caremark for future growth as a health care company. Cigarettes and tobacco products have no place in a setting where health care is delivered. This is the right thing to do. Link to CVS where President and CEO Larry Merlo explains further.

While the value to the company's image is hard to measure, there's little doubt that it's big. "They'll end up getting more than $2 billion in reputational capital and kudos," Dartmouth professor Paul Argenti tells Shots. "How often is the president of the U.S. going to come out and say your company is great?" says Argenti, referring to President Obama's praise of CVS Wednesday morning. Read more from NPR.

Actually, it is not hard to measure and it may or may not be big depending on what stakeholders were expecting, or what they value. Equity investors were not overjoyed. Over the day, CVS lost 1% while its closest rivals by market cap were flat or rose. See chart from Google.

Steel City Re's reputational value metrics, which reflect the expectations of all stakeholders including investors, are run weekly and will be added to this breaking story when they become available.

GSK: Ethical pharmaceuticals discover ethics

C. HUYGENS - Thursday, December 19, 2013
In a comment on Glaxo Smith Kline (GSK) on the Society's Linked-In page, reputation consultant Andrea Bonime-Blanc wrote, "Sometimes it takes scandal to make progress: after serious fines and scandals, GSK's CEO has just announced potentially groundbreaking steps connecting the most important dots of good corporate citizenship: desired employee behaviors to performance incentives such that overly aggressive sales targets and bonuses no longer lead to unethical or illegal behavior. Time will tell but this is extremely promising." Do the metrics bear her out?

The Consensiv reputation metrics, powered by Steel City Re's measures of reputational value, reflect stakeholder expectations and their economic effects. Of the 30 firms in its sector, Major Pharmaceuticals, Glaxo Smith Kline has generally hovered above the third quartile of the metric, Reputation Premium. Its most recent value was the 76th percentile. Its stakeholders are confident that this premium is appropriate as evidence by an extremely low Consensus Trend metric of 1.4%.  The Consensus Benchmark,which is based on a one-year average standard deviation of the Reputation Premium, indicates at 3.4% a progressively more stable course.

The data suggest that the "don't be unethical" strategy is being believed by stakeholders; it is not clear if that leaves them assured that the company's ethics are yet worth valuing at a greater premium.



For more background on the Consensiv reputation controls, click here. To view the November 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here.

Wallmart: Gently rolling head in aisle 4

C. HUYGENS - Tuesday, November 26, 2013
At a session with analysts after the 2012 Walmart (WMT) annual meeting, Bud Bugatch with Raymond James asked what effect company executives thought allegations of corruption in its Mexican operations would have on the company's reputation (Read More). As described in Reputation, Stock Price and You, Mike Duke, CEO of Walmart replied, "We will be a better company because of this."

Bloomberg reports this week that "the U.S. Department of Justice and the U.S. Securities and Exchange Commission are investigating allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country. Federal and local government agencies in Mexico also are involved in investigations. Wal-Mart has said that it also has started inquiries into potential violations of the FCPA at operations in Brazil, India and China."

Earlier this week, Walmart announced that Mr. Duke would be stepping down after 4 years at the helm and nearly 20 months since he explained how the experience would make the company better. Wal-Mart’s shares gained 69 percent from Jan. 30, 2009, the last trading day before Duke became CEO, through Nov. 22 this year. The Standard & Poor’s 500 Index more than doubled in that time.

If better is not more valuable, is there another metric? Has Walmart used the experience to improve its standing with its stakeholders -- its reputation?

The Consensiv reputation metrics, powered by Steel City Re's measures of reputational value, reflect stakeholder expectations and their economic effects. Of the 15 firms in its sector, Discount Stores, Walmart has drifted from trending above the third quartile to trending below the third quartile of the metric, Reputation Premium. This indicates lost value. Its stakeholders are confident that this premium is appropriate as evidence by an extremely low Consensus Trend metric. The Consensus Benchmark,which is based on a one-year average standard deviation of the Reputation Premium, indicates at 5.2% a surprisingly volatile ride down for such a large company.

Yes, reputational health is still top quartile, but in a field that includes JCPenny and Sears, that's not so great. There are profound operational issues that are eroding Walmart's reputational value. Complacency, evidenced by Mr. Duke's tenure, is possible only because a slow leak takes years to sink a large ship.



For more background on the Consensiv reputation controls, click here. To view the November 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here.

International Speedway Corp: Talladega daze

C. HUYGENS - Tuesday, October 29, 2013
In an article on the cheating scandal at Richmond International Raceway that rocked NASCAR more than a month ago, Viv Bernstein of the New York Times wrote that the impact "continues to be felt in a sport whose credibility has been questioned by fans, the news media and even its drivers."

For spectators, aka customers, sporting events are for entertainment. For the sponsors, they are bait for spectators. For suppliers, they themselves are customers and for creditors, they are debt servicers. All is well as long as spectators are entertained. As was noted in an article in CFO.com last year with respect to the NFL, much of the entertainment value revolves around notions of fairness - ethical behavior by competitors and quality performances by officials responsible for enforcing ethics.

At Richmond, the race was to set the field for the Sprint Cup playoff. However, the race was manipulated by drivers at Michael Waltrip Racing to try to help Truex qualify at the expense of others. Last week, reports Bernstein, "Michael Waltrip Racing announced it was eliminating 15 percent of its staff, including the No. 56 race team and Martin Truex Jr., a driver at the center of the scandal, who has paid the highest price even though it appears he did nothing wrong."

The reputational value metrics from reputation insurer Steel City Re are sensitive to the aggregate expections of stakeholders. Those expectations comprise NASCAR's current reputation; the behaviors stakeholders take in light of those expectations have economic consequences that comprise NASCAR's reputational value. Seen through the management prism of Consensiv LLC, a licensee of Steel City Re's big data and a provider of reputation value controls whose monthly league table is now published by CFO.com, Bernstein's premise is substantiated.

As one of 52 constituent companies of the Movies/Entertainment sector, International Speedway Corp (a subsidiary of NASCAR) is a reasonable proxy for its parent. The data show that its Reputation Premium has been deteriorating for a few weeks and now stands at the 59th percentile. Over the past few weeks, that deterioration as been accelerating as confusion has slowly been creeping into the expectations of stakeholders, evidenced by a rise in the Consensus Trend to 1.9%.

While the impact is still being felt, however, it is only just beginning to push ISCA's reputational health out of the healthy zone into the less certain zone of caution. The data suggest that while not sanguine, stakeholders expect NASCAR to clean up the mess and will forgive past iniquities. Forgiven and forgotten, as they say, provided events going forward don't expose new scandals. Reputation resilience has its limits.



For more background on the Consensiv reputation controls, click here.

Truth in Advertising

C. HUYGENS - Tuesday, October 01, 2013
Advertising can be a powerful contributor to better and more lasting relationships with consumers and other constituent groups, but it requires a new, creative approach to how it addresses truth. Jonathan Salem Baskin, moderator of the Mission Intangible Monthly Briefings, enumerates them:

(1) Get back to communicating functional benefits
(2) Stop pretending you’re talking in a vacuum
(3) Reaffirm the goal of getting people to like your product, not your ads
(4) Set expectations, not make promises

Reputation is a product of how expectations are set, and how they are met. Read more.

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