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.

Read future M:I posts via RSS RSS

Duke Energy: Directors personally responsible for coal ash disaster

C. HUYGENS - Tuesday, April 15, 2014
Less than 90 days after of the nation's worst coal ash spills, four Duke Energy (DUK) directors are being held personally responsible for the disaster by two large activist pension funds. An operational failure led to failure in one of the six key processes that govern reputational value: sustainabilty. More interesting than merely affirming, yet again, that a corporate reputational crisis is always personal to a corporate director, the concerted action by these two pension funds represents an entirely new strategy. It appears these two funds are trying to preserve enterprise value and mitigate a reputational crisis by naming and removing individual directors promptly.

Reuters reports today that "The California Public Employees' Retirement System and New York City Pension Funds have written to shareholders of Duke Energy Corp, urging them to vote against the re-election of four directors. The funds blamed Duke Energy directors Alex Bernhardt, James Hyler, James Rhodes and Carlos Saladrigas for the 39,000 ton coal ash spill in North Carolina's Dan river in February, after a stormwater pipe broke under a 27-acre ash pond at the company's coal plant."

The February 2 spill, according to the activist organization, Southeast Coal Ash, began when "a stormwater pipe burst beneath a coal ash impoundment at Duke Energy’s retired Dan River Power Station near Eden, North Carolina." Duke Energy estimates 30,000-39,000 tons and 24 million gallons of wastewater, or about 140,000 tons of toxic waste, entered the Dan River.

The reputational value metrics profile of Duke Energy is instructive. The company is, and has been a top performer in its peer group of 131 electric utilities, coming in this week with a Reputation Premium at the 98th percentile. Befitting a company with a superior reputation (read, high expectations among stakeholders), Duke Energy struck a conciliatory tone, admitting the spill at its Dan River plant shouldn't have happened. "Duke Energy takes full responsibility for this accident. We'll be taking a fresh look at all of our ash basins and how we handle that after we fix this pipe," Duke Energy spokesman Tom Williams told WSOC TV.

The Consensus Trend, an indicator of stakeholder uncertainty, started rising after the spill taking Duke Energy up from below the first quartile to the median. By any objective measure of reputational value, this is discomfort, but certainly not a crisis.

In what should be viewed as a possible sea change, activist investors are now getting ahead of the "usual pile on of litigators, regulators and mommy bloggers. " They are going directly after the board -- not to extract monetary compensation -- but to preserve enterprise the company's reputational health and top drawer reputational value by shaking up what the funds believe constitutes a failure in governance, control and risk management. The are demanding individual board members be held culpable -- very personal, indeed.

Google: Reputation is a Drag

C. HUYGENS - Thursday, January 02, 2014
Earlier today, two articles appeared at Ad Age and CFO commenting on the widening impact of stakeholder attention to data privacy. The general message is that stakeholders are becoming resistant to releasing data for free. The specific message is that companies once trusted to "do the right thing" with those data, or at least not do evil, are experiencing reputation "issues" that are creating a drag on value.

From Ad Age: ...there's a growing body of thought and tools to protect, or at least impede, the collection of personal data. You can run plug-ins on your browser to throw random data at collectors; extensions that reveal who's tracking the sites you visit (and block them); and mobile apps to jam location identifiers. Expect more innovation on this front next year, along with more vocal advocacy in support of it. There's even big money somewhat inadvertently behind the issue: Microsoft has elected to make privacy a differentiator in its marketing against Google, at least for now.

From CFO.com: In its third quarter 2013 financial results, Google reported its eighth consecutive decline in price per click, the money it can charge advertisers. But what’s worrisome is that this eight percent year-over-year loss in pricing power for its core business, a symptom of reputational value loss, is associated with other signs of stakeholder disaffection.

Huygens commented on Google in March, months ago, suggesting a looming drag on value when the stock was soaring; do the reputation metrics bear out these predictions at this time?

The Consensiv reputation metrics, powered by Steel City Re's measures of reputational value, reflect stakeholder expectations and their economic effects. Of the 136 firms in its sector, Internet Software and Services, Google has held on to the highest value of the metric, Reputation Premium. But as of late, there has been a bit of volatility. This appears a subtle dip of the Reputation Premium. More obvious is the corresponding indicator that Its stakeholders are slightly less confident that this premium evidenced by an onging rise in the Consensus Trend metric to 1.3%.  The Consensus Benchmark,which is based on a one-year average standard deviation of the Reputation Premium, even at 9.1% indicates a less volatile course than most of its peers. This is what early cracks in the reputation veneer look like, and it helps explain why Google completely dropped off the December Consensiv 50 reputation value league table.



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).

BP: Not taking it anymore

C. HUYGENS - Wednesday, September 11, 2013
BP is mad as hell and not taking it anymore. They're drawing a line under the amount of compensation they're prepared to pay for the April 2010 Gulf Disaster, and taking the fight to litigators, regulators and mommy bloggers.

“BP has done what it was required to do,” said Jonathan Salem Baskin, a Chicago-based brand management specialist and co-founder of Consensiv, a consulting firm for managing reputations. But he added that “after spending millions in communications saying, ‘I’m sorry,’ from a reputation standpoint, it’s done nothing in terms of their financial performance.

Read the whole story in Politico.

Reputation: Who's asking?

C. HUYGENS - Wednesday, June 19, 2013
Reputation is a reflection of the implicit social contract between a company and its myriad stakeholders. One size does not fit all.

Ron Orol reports this week in Capital Report that supply-chain management, interest-rate risk and sustainability issues are three topics that are high on the list of concerns raised by investors in U.S. corporations. He writes:

Lynn Turner, a former chief accountant at the Securities and Exchange Commission, said shareholders’ focus will vary by industry. Big banks, for example, need to explain to investors how they will manage their risk as interest rates rise, he said. “If you are retail corporation, supply-chain stuff has got to be at the top of the list,” Turner said. “If you are a financial institution today, what is going on with interest rates and, as interest rates rise, being able to manage your debt, being able to explain to investors how you are positioned to deal with the risk as interest rates rise and spreads change is going to be very important.” He added that oil and gas companies invested in natural resources will need to respond to investors with environmental concerns.

Steel City Re calculates measures of reputational value that report company performance against that which stakeholders expect -- the implicit social contract. Those metrics "aren’t value judgments, they’re tangible proof of the quality of stakeholder relationships."

Consensiv, a consultancy focusing on returns in investments in reputation and which incorporates the licensed metrics into robust management solutions, explains the inherent value in what are agnostic measures. "We don’t decide what causes matter, or how to best substantiate our beliefs that they should have effects. We measure effects as a platform from which to better explore and reveal causes."

Companies seeking to maximize stakeholder value, the value of the implicit social contracts, aka, reputational value, will be sure to know what is of greatest concern to their stakeholders. They will find creative ways to enable stakeholders to appreciate and value that which they are doing, and monitoring tools to ensure that they are meeting stakeholders' expectations.

A program not to be missed: 22 Feb 10h00 EST

C. HUYGENS - Friday, February 08, 2013

What's all this about corporate social culpability? Sure, corporations are today the main agents of global, social and political change. Of course, governments are the political entities holding the national mandate for social responsibility. But here's the rub. Some socially oriented stakeholders expect corporations to lead social change; others fear that corporate motivations are inherently antisocial and prefer governments to take the lead. Still others prefer government to act by incentivizing corporations. These varied expectations underpin social activism and voting patterns, reputations, stock price, and election outcomes.

Joining us on Friday, 22 February 2013 at 10h00 ET (15h00 GMT) are Daniel Diermeier, IBM Professor of Regulation and Competitive Practice and Director, Ford Motor Company Center for Global Citizenship, Kellogg School of Management, Northwestern University and author of Reputation Rules: Strategies for Building Your Company's Most Valuable Asset; and Scott Childers, Director of Integrated Trade Management at The Walt Disney Company, and a member of the Society's Reputation Leadership Council. Jonathan Salem Baskin,  author of Tell the Truth, moderates. Learn more.

Since 2008, the Society's complimentary Mission:Intangible Monthly Briefings have been providing senior executives and corporate Directors with tools for increasing enterprise value. There is no cost to joining our conversation by phone. Register now.

MIMB: Corporate Social Culpability: The buck stops somewhere - 22 Feb Friday 10h00

C. HUYGENS - Friday, February 01, 2013

Corporations are today the main agents of global, social and political change. Of course, governments are the political entities holding the national mandate for social responsibility. Some socially oriented stakeholders expect corporations to lead social change; others fear that corporate motivations are inherently antisocial and prefer governments to take the lead. Still others prefer government to act by incentivizing corporations. These varied expectations underpin social activism and voting patterns, reputations, stock price, and election outcomes.

Joining us on Friday, 22 February 2013 at 10h00 ET (15h00 GMT) are Daniel Diermeier, IBM Professor of Regulation and Competitive Practice and Director, Ford Motor Company Center for Global Citizenship, Kellogg School of Management, Northwestern University and author of Reputation Rules: Strategies for Building Your Company's Most Valuable Asset; and Scott Childers, Director of Integrated Trade Management at The Walt Disney Company, and a member of the Society's Reputation Leadership Council. Jonathan Salem Baskin,  author of Tell the Truth, moderates. Learn more.

Since 2008, the Society's complimentary Mission:Intangible Monthly Briefings have been providing senior executives and corporate Directors with tools for increasing enterprise value. There is no cost to joining our conversation by phone. Register now.

Dole: How we know the Earth to be banana-shaped

C. HUYGENS - Monday, January 28, 2013
The tall tales of Sir Bedemir make for great rolls of laughter; not so for the one Dole told about the plantation. This is how Bloomberg reported the story (Jan 25 ) :

Dole Food Co. (DOLE) settled a lawsuit claiming the world’s biggest producer of fresh fruit and vegetables misled consumers about the environmental practices on a contractor’s banana plantation in Guatemala. Lawyers for the plaintiff, a California resident who said he wouldn’t have bought Dole’s bananas had he known the truth about the conditions at the plantation, filed a request to dismiss the case today in federal court in Los Angeles.

Yes, the news clip had Huygens scratching his head, too. Have things sunk so low that either (a) Dole is confabulating or (b) it is willing to settle for wrongful potassium enrichment? A quick look at Steel City Re's Reputational Value Metrics for Dole tell a story full of woe.

The company's reputational vital signs (top row, left) reflect uncertainty and change in this $930 million member of the Agricultural Commodities/Milling group comprising some 60 peers. A great brand by most measures, the company's CRR, a measure of reputational ranking, is only in the 25th percentile. Its RVM's, a non-financial measure of reputational value, shows a recent spike in volatility after a huge surge and retreat in the company's return on equity. These are both the metrics and behaviors of a company preparing itself for sale and seeking to clear the decks of any external sources of value-sapping risk.

One interpretation of the data is that investors have great hopes; other stakeholders less so as the indicators suggest high probability of change in reputational ranking (CRR) and the direction is slightly negative. [CORRECTION 29 Jan 17h05 EST: The Vital Signs stability indicator is at the 97th percentile suggesting LITTLE expectation of change.] Another interpretation is that Dole is placing great value on its claims of sustainability and seeks to differentiate its commodity products through superior processes. On that theory, settling the lawsuit was the first step in reputation restoration and perhaps a strategy of reputation enhancement.

The Reputational Value Metrics can only report what stakeholders are doing to create or erode value. Right now, the stronger interpretation is that they are eroding value. Nevertheless, current RVM volatility spikes (top row, right) are often associated with surprising news. Let's hope this lawsuit settlement was not all there is.



Unilever: Seeking success through sustainability

C. HUYGENS - Wednesday, November 17, 2010
On Monday, 15 November, Unilever (NYSE:UL) unveiled a business model overhaul that was 12 months in the planning. The core strategy is sustainability.

Here is how the Guardian describes it:

The initiative will cover not just Unilever's greenhouse gas emissions, waste and water use – but the impact caused by its suppliers and consumers, from agricultural growers to the packaging and waste water produced by consumers of Unilever brands. The Anglo-Dutch group also intends to improve the nutritional quality of its food products – with cuts in salt, saturated fats, sugar and calories – and link more than 500,000 smallholder farmers and small scale distributors in developing countries to its supply chain.

Looking at the reputation metrics, there is no indication that the market has been anticipating a major announcement of a strategic shift designed to increase enterprise value along with corporate reputation. Over the trailing twelve months, the Steel City Re Corporate Reputation Index rank has slipped progressively from the 58th percentile to the 34th percentile relative to the 25 peers in the Food: Major/Diversified sector. (The top ranked firms are currently HJ Heinz (NYSE:HNZ); Kellog Co. (NYSE:K) and TreeHouse Foods (NYSE:THS)). During this period, the company's return on equity has underperformed the median of its peer group by 2.75%. As of 11 November, the exponentially weighted moving average volatility of its Index ranking has dropped to 7.6%, but the Index velocity and vector are overall negative at -3% and -6% respectively.

The sector as a whole as shown a decrease in its median reputation ranking as well as a progressive decrease in the variance within the group. Last, the entire sector is heavily leveraged with the median intangible asset value fraction in excess of 100%. Unilver's intangible asset fraction of 118% is marginally greater than the median of 114%.

We'll be following Unilever to see how its sustainability strategy pans out.

Credit: Seeking an environmentally clean balance sheet

Nir Kossovsky - Tuesday, August 31, 2010
The New York Times reports today  that major lenders are backing off from companies that present the potential for material environmental risks. It's a reputational thing.

According to the report by Tom Zeller, "After years of legal entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines." Major financial institutions now factoring sustainability issues into their lending decisions include Wells Fargo (NYSE:WFC), Credit Suisse (NYSE:CS), Morgan Stanley (NYSE:MS), JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citibank (NYSE:C), HSBC (NYSE:HBC), and Rabobank (AMS:ROBA).

In the parlance of the Society, it appears that sustainability policies and practices are emerging as material credit risk factors. And for those of you who were wondering what all the fuss is about at the Society, this is an example of what we mean by "intangible asset finance."

Walmart: Laboring to protect its reputation

C. HUYGENS - Wednesday, May 12, 2010
As April came to a close, Walmart Stores Inc. (NYSE:WMT) received bad news. The United States Court of Appeals for the Ninth Circuit, in San Francisco, ruled that the plaintiffs alleging unfair labor practices against female employees (read, unethical practices) can head to court as a class action. This decision transforms a nine year old matter into the largest class-action employment lawsuit in U.S. history.

Besides being a welcome break from the headline risk crises on safety, quality and ethics facing BP (NYSE:BP), Toyota (NYSE:TM), and Goldman Sachs (NYSE:GS), the issue provides an opportunity to test a central hypothesis held by the Society and described in detail in the book, Mission Intangible. This is it.

Reputation value is the sum of the value contributed by six key intangible assets (business processes) governing ethics, quality, innovation, safety, sustainability, and security. The assets create value cooperatively like the stones in a Roman arch; loss of any one key stone can destroy significant value.

Let’s also recap what is value. Market capitalization is the obvious one. More to the point, companies with superior reputations have enhanced pricing power, lower operating costs, lower credit costs, and higher earnings multiples. It's that simple.

Walmart has invested significant time and effort into building authentic credentials and a reputation for excellence in sustainability practices. Is its reputation for sustainability sufficient to compensate for its less-than-stellar reputation in labor (ethics)? The hypothesis would suggest that they are independent, and that failure in either could erase the reputation value created by the other. Let’s look at the numbers.



The Steel City Re Corporate Reputation Index, also described in greater detail in the book, Mission Intangible, shows that Walmart’s reputation ranking has slipped from the coveted #1 slot of the 100th percentile among 39 peers in the multiline retail sector. Over the past 16 months, Walmart has moved from the top ranking to the 94th percentile. Economically, its return on equity has underperformed both the median return of its peers (by 42%) and the S&P500 benchmark index.



In contrast, Target Inc. (NYSE:TGT), a rival whose charting in this Mission Intangible blog back in June 2009 has been the most popular post ever, raised its reputation ranking among this peer group from the 46th percentile to the 94th percentile. At the same time, it outperformed the median of its peers (by 27%) and the S&P500 index.



Also for contrast look at Walgreen Co. (NYSE:WAG). During this period, their reputation ranking rose from the 69th percentile to the 81st percentile, and it outperformed its peer group by a narrow 2%, but comfortably beat the S&P500 Index.



Last, note that the multiline retail sector, as a group, slipped in its median reputation ranking relative to the broad market. Furthermore, the variance among the individual companies comprising this sector narrowed. The sector's median reputation ranking drop stands out dramatically in contrast against Target's reputation ranking rise.

Overall, these data affirm the increasing importance of reputation management in increasing, protecting and restoring enterprise value; and that reputation management involves addressing core business processes whose perceptions by stakeholders comprise reputation. These data also affirm the Roman Arch model, which plainly says, if you don't pay attention to all of your key business processes, then, when a headline crisis strikes, your stakeholders may turn on you in a heartbeat.

Recent Comments


SuMoTuWeThFrSa
  
1
2
3
4
5
6
7
8
9
10
11
12
1314
15
16171819
20212223242526
27282930   
 

Subjects

Archive