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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Hewlett-Packard: Silicon Valley smackdown

C. HUYGENS - Friday, October 08, 2010
The most recent “gotcha last, no tagbacks” comes from the Hewlett-Packard (NYSE:HPQ) team who named former SAP boss Leo Apotheker as its new chief executive 30 Sep.

Team HPQ sued its rival, team Oracle (NASDAQ:ORCL) recently when the latter hired briefly-disgraced HPQ CEO Mark Hurd. The grounds: misappropriation of trade secrets. ORCL is now enraged. This is why. Not only did HPQ just name Ray Lane, former Oracle president and COO, as nonexecutive chairman of HP's board, it turns out that Mr. Apotheker had been in charge of SAP (NYSE:SAP) at a time when it was stealing Oracle’s software. The case of ORCL v SAP is scheduled for trial soon.

On the basis of reputation and financial metrics, Oracle is winning this spat. A side by side comparison of metrics from the Steel City Re Corporate Reputation Index, with a customized peer group comprising relevant hardware and software companies totalling 132 in all, shows that HPQ’s reputation ranking (on the left) has slid over the trailing twelve months 27 points from the 97th percentile to the 70th percentile, while ORCL’s (on the right) has slid only 18 points from the 84th to the 66th.

While the former’s slide has been chronic and steady -- the most recent six months shown in the second set of graphs -- the bulk of ORCL’s reputation change has occurred only amidst the sturm und drang of the past few weeks. Hence HPQ is underperforming this peer group by a respectable 18% (yellow line, top graph, left)while the now volatile ORCL is currently outperforming this peer group by 21% (yellow line, top graph, right).

Facebook: Hollywood plots reputation

C. HUYGENS - Tuesday, October 05, 2010
Popular interest in “intellectual property” continues to dwindle while interest in the product of the business processes comprising intellectual property -- reputation -- continues to rise. And while the 7-year Google Trends image speaks for itself, the ultimate proof of having arrived at mainstream thought is to be incorporated into a Hollywood blockbuster.



The 2010 film “Social Network” presents the birth of Facebook through flashbacks anchored to depositions for two lawsuits, one involving the alleged theft of intellectual property. Reputation is a major plot element.

Having discovered in the Harvard student newspaper, The Crimson, that defendent Mark Zuckerberg had launched Facebook, plaintiff Cameron Winklevoss explains to the attorneys that he read the story over the phone to his father’s lawyer.
CAMERON:  “It’s titled, ‘Hundreds Register for New Facebook Website” and then the subheadline is “Facemash creator seeks new reputation with latest online project.”

In voicing his objection to a business meeting with Sean Parker, founder of Napster and Plaxo, Facebook CFO and co-founder Eduardo Saverin tells Mark,
EDUARDO: He crashed out of two pretty big internet companies in spectacular fashion and he’s got a reputation with drugs.

As the tension between the two co-founders grows, facilitated unhelpfully by Sean, Eduardo freezes the Facebook bank account.
MARK: You froze the account.


EDUARDO: I had to get your attention, Mark.
MARK: Do you realize that you jeopardized the entire company? Do you realize that your actions could have easily destroyed everything I’ve been working on?
EDUARDO: We’ve been working on.
MARK: Without money, the company can’t function. If the servers are down for even a day, our reputation is damaged irreversibly. Users are fickle. Friendster has proven this fact.

Good news. It's cool to be into "reputation."

RepuStars 2010 Oct 04

C. HUYGENS - Monday, October 04, 2010

Weekly Reputation Index Metrics


At the close of trading 30 September 2010, the RepuStars™ and Repustars-II Composite Indices stood at 121.00 and 132.56, respectively. Over the past four weeks, the former Index has increased by 5.22%, while the latter has increased by 6.99%. The benchmark S&P500 Composite Index stood at 96.21 (rebased to 7 Jan 2005) and has increased over the past four weeks by 4.69%.

Since January 2009, the RepuStars and RepuStars-II Composite Indices have gained 35.89% and 57.60% respectively; the S&P 500 Composite Index has gained 22.47%. Other interval changes in the magnitude of the indices are shown below.

    

The RepuStars family of composite indices reflect the added value of reputation resilience. The RepuStars Composite Index comprises the two firms in each of 20 major sectors with the greatest periodic rise in their Steel City Re Corporate Reputation Index ranking sampled from the large cap segment of the U.S. equities market. Eligibility requirements are market capitalization >$3.5B, share price >$5.0, and reputation ranking between the 25th and 85th percentile. The RepuStars-II Composite Index selection criteria include market fundamentals. The benchmark metric is the S&P500 Composite Index. The 36-month trailing beta of the Repustars II index is 1.28. The alpha is positive.

The Repustars indices are reconstituted biannually in the first weeks of January and July. Click here for additional information on the indices.

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 first Friday of every month or read the book, Mission: Intangible. Managing risk and reputation to create enterprise value, available at the IAFS Store 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. 

REPUSTARS is a registration-pending trademark used under license.

BP: Reputation restoration 101

C. HUYGENS - Sunday, October 03, 2010
It is hard to be describe the process of reputation restoration more concisely than this:

If we meet our obligations like we have been, then over time people will say – this was a good corporate citizen to respond to an accident that has been a wake-up call to the entire oil and gas industry. If we ensure this doesn't happen again then maybe we can restore our reputation in the US.

Bob Dudley, CEO, BP (NYSE:BP)
1 Oct 2010

To enumerate:
1. Acknowledge the problem and identify both the proximate and systemic cause(s)
2. Repair risky processes to mitigate the cause(s)
3. Raise the bar for the entire industry.

Yes, it's that simple. Now go execute. Not sure how? Then join the Society and become part of the premier global resource for professionals seeking enterprise-wide strategies that foster an ethical and innovative business culture, increase the quality, safety, sustainability and security of goods and services, and enhance reputations.

Welcome aboard, Huygens

Nir Kossovsky - Friday, October 01, 2010
Modeled on a well respected newspaper whose formula has been described as "a consistent world view expressed, consistently, in tight and engaging prose,” this blog has presented articles that take a definite editorial stance. Moreover, this blog publishes the Corporate Reputation Index (from Steel City Re), an instrument unique in its scope and content that provides decisive statistics on intangible assets and their umbrella, reputation.

In the spirit of that newspaper, the bylines from these blog posts are retiring to obscurity. In their stead, please welcome a name that reflects their topic. Effective today, the blog posts will be attributed to C. Huygens - named for Christiaan Huygens, a prominent Dutch mathematician, astronomer, physicist, horologist, and writer of early science fiction whose 1657 publication on probability theory laid the foundation for risk management and insurance.

Click here to listen to four native Dutch speakers pronounce the name, Christiaan Huygens  (and that of his landsman, Antony van Leeuwenhoek.)

Goldman Sachs: It's only a flesh wound

Nir Kossovsky - Wednesday, September 29, 2010
Goldman Sachs (NYSE:GS) is back. As reported by the Dow Jones wire service Monday 27 September 2010, Goldman Sachs has retained its coveted position at the top of the league table of M&A advisers by both revenue and number of deals globally, and for the U.S. and Europe, during the first nine months of 2010, figures from Dealogic show Monday. Goldman's dominance in the coveted list--only twice broken in the past ten years--is unchanged compared with a year ago on a global basis for the first nine months of the year, reinforcing the idea that the investment bank continues to see little fallout from the negative publicity it has garnered this year.

On a global basis, Goldman advised on 225 deals, with a total value of $401.6 billion, Dealogic figures show, giving them a market share of just over 20%. Goldman generated $961 million in revenue from its global M&A advisory. It also topped the rankings according both to deal value and advisory revenue in the U.S. In Europe, although it took the top position measured by deal value, it fell to fifth position according to advisory fee revenue, beaten by Morgan Stanley (MS), Rothschild, JP Morgan and Deutsche Bank AG (DB). In Asia Pacific excluding Japan, however, Bank of America Merrill Lynch topped the M&A ranking, according to value of deals, with a nearly 20% market share. UBS A.G. (UBS) topped the Asia Pacific ranking measured according to the M&A fees ranking, Dealogic says. For Japan, Nomura (9716.TO) dominated the rankings over the same period for both criteria.

The reputation metrics indicate that Goldman Sachs has retained its position at a cost. The Steel City Re Corporate Reputation Index™ ranking for the Company has dropped a net 9 percentile points over the trailing twelve months from the 98th percentile to the 89th percentile as shown in the top chart. Concurrently, the reputation rankings for the entire industry improved, as shown in the 4th chart, with little change in the inter-sector variance. Goldman Sachs' return on equity, in the top chart, and its fractional intangible asset value, shown in the last chart, reveal under performance by 19% and a persistent material loss of intangible asset fractional value.

When we last looked at the Company's metrics, we speculated that the equity markets were not appreciating the Company's value. With the benefit of hindsight, we see that the markets were underpricing the Company relative to its reputation ranking, but were nevertheless sensing real expected loss. A loss of pricing power. We interpret these metrics, in the aggregate, to suggest that Goldman Sachs has had to yield a bit on price. We believe customers want Goldman Sachs for their intellectual prowesss, but sense that they can squeeze Goldman on price. A bit, anyway. For now.  And so it goes.


RepuStars 2010 Sep 27

Nir Kossovsky - Monday, September 27, 2010

Weekly Reputation Index Metrics


At the close of trading 23 September 2010, the RepuStars and Repustars-II Composite Indices stood at 118.33 and 130.40, respectively. Over the past four weeks, the former Index has increased by 7.50%, while the latter has increased by 9.79%. The benchmark S&P500 Composite Index stood at 94.83 (rebased to 7 Jan 2005) and has increased over the past four weeks by 7.41%.

Since January 2009, the RepuStars and RepuStars-II Composite Indices have gained 32.90% and 55.03% respectively; the S&P 500 Composite Index has gained 20.72%. Other interval changes in the magnitude of the indices are shown below.

    

The RepuStars family of composite indices reflect the added value of reputation resilience. The RepuStars Composite Index comprises the two firms in each of 20 major sectors with the greatest periodic rise in their Steel City Re Corporate Reputation Index ranking sampled from the large cap segment of the U.S. equities market. Eligibility requirements are market capitalization >$3.5B, share price >$5.0, and reputation ranking between the 25th and 85th percentile. The RepuStars-II Composite Index selection criteria include market fundamentals. The benchmark metric is the S&P500 Composite Index. The Repustars indices are reconstituted biannually in the first weeks of January and July. Click here for additional information on the indices.

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 first Friday of every month or read the book, Mission: Intangible. Managing risk and reputation to create enterprise value, available at the IAFS Store or other leading online book retailers
2. Become a member of the Intangible Asset Finance Society and engage. At the very least, read our current (Fall 2010) Newsletter and learn more about us.
3. Join our community on Linked-In and stay in the information flow. 

Dominos: Serving volatility daily

Nir Kossovsky - Wednesday, September 22, 2010
Some people crave pizza. They obsess over it. OK, we admit to that weakness -- at least with respect to Dominos Pizza (NYSE:DPZ), a firm whose reputation metrics and economic performance do not jive well with our models. The good news for stakeholders is that DPZ over the trailing twelve months has outperformed the median of its peers by 62%. The unsettling news for us is that the Steel City Re Corporate Reputation Index ranking over the same trailing twelve months only moved up from the 42nd to the 43rd percentile among the 54 companies in this sector. Hardly a reputational advance befitting such fabulous financial performance.

This is how we explain it: volatility. Volatility in our 4-factor Index is a measure of how well a company gets its message across to stakeholders, and, conversely, how uniform of a picture stakeholders hold of the firm. As shown below, all of the reputation metrics, and the economic return metrics, speak to volatility. A lot of it.




Volatility counts against a firm's reputation by the Index. But with a net Index change over the trailing twelve months of a paltry one percentile and an economic gain, albeit volatile too, that is quite material, we are not satisfied with volatility alone as an explanation for the apparent discrepancy. This is especially true in light of the small variance in the reputation metrics within the Restaurant Group as a whole as shown in the fourth graph.

So, as we noted previously in June, we see a significant drop in intangible asset fractional value as shown in the last of five graphs. While the median intangible asset fraction is around 70% for the sector, Dominos is around 250% -- down from a peak of 450%. We therefore continue to interpret the gain in equity value as a function of a growth in tangible value (read, reduction in overwhelming debt). And that's a good thing for all which, we believe, will be recognized eventually leading to a rise in the reputation index -- an (unusually) lagging metric in this instance.

Heads Up - Quarterly News Update Posted

The Fall 2010 News bulletin is now live. Click here to read through and learn more about what is going on with our Society this fall.

RepuStars 2010 Sep 20

Nir Kossovsky - Monday, September 20, 2010

Weekly Reputation Index Metrics


At the close of trading 16 September 2010, the RepuStars and Repustars-II Composite Indices stood at 118.43 and 129.34, respectively. Over the past four weeks, the former Index has increased by 5.21%, while the latter has increased by 6.11%. The benchmark S&P500 Composite Index stood at 94.81 (rebased to 7 Jan 2005) and has increased over the past four weeks by 4.56%.

Since January 2009, the RepuStars and RepuStars-II Composite Indices have gained 33.00% and 53.77% respectively; the S&P 500 Composite Index has gained 20.70%. Other interval changes in the magnitude of the indices are shown below.

    

The RepuStars family of composite indices reflect the added value of reputation resilience. The RepuStars Composite Index comprises the two firms in each of 20 major sectors with the greatest periodic rise in their Steel City Re Corporate Reputation Index ranking sampled from the large cap segment of the U.S. equities market. Eligibility requirements are market capitalization >$3.5B, share price >$5.0, and reputation ranking between the 25th and 85th percentile. The RepuStars-II Composite Index selection criteria include market fundamentals. The benchmark metric is the S&P500 Composite Index. The Repustars indices are reconstituted biannually in the first weeks of January and July. Click here for additional information on the indices.

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 first Friday of every month or read the book, Mission: Intangible. Managing risk and reputation to create enterprise value, available at the IAFS Store 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. 

BP: FTSE4Good bids adieu

C. HUYGENS - Wednesday, September 15, 2010
This coming weekend, the good people who manage the FTSE4Good ethical investment index will show BP (NYSE:BP) the door. From 18 September, BP will be excluded from the index which many managers of ethical funds use to screen companies before including them in their portfolios. (BP is not a constituent member of either of the RepuStars composite indices.)

All we can ask is, "what took the FTSE so long?" Below, the Steel City Re Corporate Reputation Index ranking for BP and other reputation and intangible asset-related metrics. The pictures are worth thousands of words.



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