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

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."

RepuStars 2010 Aug 30

Nir Kossovsky - Monday, August 30, 2010

Weekly Reputation Index Metrics


At the close of trading 26 August 2010, the RepuStars and Repustars-II Composite Indices stood at 110.07 and 118.8, respectively. Over the past four weeks, the former Index has decreased by 3.63%, while the latter has decreased by 3.01%. The benchmark S&P500 Composite Index stood at 88.28 (rebased to 7 Jan 2005) and has decreased over the past four weeks by 4.93%.

Since January 2009, the RepuStars and RepuStars-II Composite Indices have gained 23.62% and 41.21% respectively; the S&P 500 Composite Index has gained 12.39%. 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. 

Hewlett Packard: Curse of the C-suite

Nir Kossovsky - Wednesday, August 25, 2010
It would be difficult to top the language of the Silicon Valley Mercury News. “In a stunning plot twist in the long-running Silicon Valley soap opera that is Hewlett-Packard (NYSE:HPQ), Mark Hurd resigned as CEO of the Palo Alto tech giant after an investigation into a sexual-harassment claim.” While a company "investigation determined there was no violation of HP's sexual harassment policy, the probe concluded Hurd filed false expense reports to conceal his relationship with the woman. Blame it on whatever is in the water cooler servicing the C-suite.

The Steel City Re Corporate Reputation Index indicates the event was material. To quote an HP employee website, “The performance of a leader must be measured -- and rewarded -- based on more than the numbers. Integrity matters. Trust matters. We're talking about "violations of HP's Standards of Business Conduct" by the man who held ultimate responsibility for corporate conduct.”

HP began the period with a reputation ranking in the 95th percentile and exhibited little volatility (EWMA=0.014) until the events of the recent past. At this writing, the company’s reputation index has drifted down to the 84th percentile to the benefit of both Fugitsu Ltd (OTC:FJTSY) and Lenovo Group Ltd. (OTC:LNVGY), and further distancing itself from the 22-company Computer Processing Hardware sector leader, Apple Inc. (NASDAQ:AAPL).



Economically, HP is currently underperforming the median of this sector by 27.53%, but this is largely legacy effect from having both outperformed most of the sector, and having shown material resilience over the past five years. However, the future is not promising. The sector, as a whole, is in decline with the median reputation ranking relative to the whole market drifting from the low 40th percentile to the high teens over the trailing twelve months. Thus HP’s reputation slippage at this juncture does not bode well for teh company's future economic returns.

RepuStars 2010 Aug 23

Nir Kossovsky - Monday, August 23, 2010

Weekly Reputation Index Metrics


At the close of trading 19 August 2010, the RepuStars and Repustars-II Composite Indices stood at 112.56 and 121.9, respectively. Over the past four weeks, the former Index has decreased by 1.08%, while the latter has grown by 1.46%. The benchmark S&P500 Composite Index stood at 90.68 (rebased to 7 Jan 2005) and has decreased over the past four weeks by 1.65%.

Since January 2009, the RepuStars and RepuStars-II Composite Indices have gained 26.42% and 44.92% respectively; the S&P 500 Composite Index has gained 15.44%. 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. 

Target: The dog didn't bark

C. HUYGENS - Wednesday, August 18, 2010
More than two weeks have passed since Target (NYSE:TGT) found itself facing incensed stakeholder with pitchforks upset by the ideology of the beneficiary of one of the company's political donations. Positioned broadly in the media as a reputation story, we took interest and found no measurable effect last week. We return again to see if there was latency to the reaction. And we hear - silence.

Turning to the Steel City Re Corporate Reputation Index metrics, Target continues its now 4-week trend of occupying the #1 reputation rank, the 100th percentile, relative to a peer group comprising 16 Department Stores. It has also continued to narrow the economic return gap relative to the median of its peer group, rising another 2%. All of which, in a purely quantitative sense, affirms our previous conclusion that the aforementioned incident, managed as it was with multiple apologies, was limited to a reputation non-event from Target's perspective.

Meanwhile, Walmart (NYSE:WMT) continues to face the looming threat of a reputation crisis tied to its historic labor issues that may overshadow the reputation it has been building around its committment to sustainability. So thought  we'd compare the two sets of reputation metrics by creating a custom peer grouping of 141 Retail companies. (We are only responding to your demand: our TGT, WMT, and Big Box retail blogs are the most widely read of our entire library.) 

Within this peer group, Target began the trailing twelve month period in the 89th percentile and is now in the 92nd percentile. It is underperforming economically the median of the custom peer group by 0.74%. In the second chart, we see that its exponentially weighted moving average (EWMA) reputation ranking volatility has been decreasing over the past quarter, and in the third chart, its most recent trailing twelve week reputation velocity is a positive 2 percentile points per quarter. In short, a good reputation holding steady with no evidence of material consequences from the incident.



Within this same peer group, Walmart began the trailing twelve month period in the 96th percentile and is now ranked in the 91st percentile. It is underperforming economically the median of the custom peer group by 19.12%. In the second chart, we see that its exponentially weighted moving average (EWMA) reputation ranking volatility, having climbed a bit at the end of the previous quarter, has been decreasing recently to a very low level, and in the third chart, its most recent trailing twelve week reputation velocity is a negative 1 percentile point per quarter. In short, a good reputation slowly and gently diminishing.  



Closing the loop on the original incident involving Target these past few weeks, there is no evidence that Walmart benefited in terms of either a boost in reputation or economic return.

RepuStars 2010 Aug 16

Nir Kossovsky - Monday, August 16, 2010

Weekly Reputation Index Metrics


At the close of trading 12 August 2010, the RepuStars and Repustars-II Composite Indices stood at 111.39 and 120.8, respectively. Over the past four weeks, the former Index has decreased by 2.03%, while the latter has grown by 0.45%. The benchmark S&P500 Composite Index stood at 91.35 (rebased to 7 Jan 2005) and has decreased over the past four weeks by 1.17%.

Since January 2009, the RepuStars and RepuStars-II Composite Indices have gained 25.1% and 43.66% respectively; the S&P 500 Composite Index has gained 16.29%. 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. 

Leftovers - M:I MB of 10-Aug-6

Nir Kossovsky - Thursday, August 12, 2010
On the first Friday of each month, the Society’s Mission:Intangible Monthly Briefing presents a moderated conversation exploring issues of management, marketing, finance, law, and risk as they relate to the primary corporate intangible assets. Participants are encouraged to forward questions to the moderator, Mary Adams. Because of the overwhelming supply of questions, there are often leftovers.

We use this forum to continue the conversation. At the M:I MB this past Friday, 6 August, the program was titled You say IP. I say IPR. It featured Dr. Roya Ghafele, Lecturer at Oxford University and expert on IP perceptions, and formerly an economist at both the UN World Intellectual Property Organization and Organization for Economic Cooperation and Development; in conversation with Jim Singer, partner at the Pepper Hamilton law firm, a member of the firm's intellectual property practice group and publishes the IP Spotlight blog, and formerly an electrical engineer with an iconic oil firm. Over the hour, they discussed whether accounting rules and language hinder the monetization of intellectual property, or, in the alternative whether accounting -- due to its inability to measure intangible asset value -- is becoming progressively irrelevant. Here are the leftovers.

QUESTIONS: How have you handled the lumping of all IP and IPR into one set for common treatment in M&A transactions? I have been in-house IP counsel both on the selling side and buying side of private equity deals. I have consistently found the M&A folks to deem themselves as IP and IPR transfer experts who treated all types of assets (patents, TMs, copyright, trade secrets, know-how and collective company knowledge, etc.) as one and the same. Such treatment of intangible assets is highly detrimental and I was wondering how you counsel customers and clients against falling into such traps (for instance, pledging a security interest in all assets and representing absolutely clean title in those assets by a drop-dead date does not work for all types of IP and IPR in all countries). Does the switch to a more onerous term such as “tax liability” or “stamp duties” garner the requisite attention? Do you counsel a publicly traded company differently from a non-publicly traded company?

JIM SINGER: I find that it's important for IP counsel to be involved in the transaction early in the process, so that we can draft reps and warranties (and diligence questions) that make clear distinctions between the different types of IP needed. For example, attorneys with no IP background often ask for a common set of reps and warranties for "all IP owned or used in the business." Or, they want schedules listing "all IP used in the business." I find myself having to explain that (a) owned IP needs often needs to be analyzed in a manner that's different from licensed IP, and (b) it's not practical to list all IP, since every document that a company ever created is subject to copyright. So, in order to avoid last-minute changes, I try to get involved as early as possible so that the IP issues help drive the deal (rather than IP simply being an afterthought). Also, you raise a very good point about issues such as stamp duties and security interests in the international context. It's common that companies don't think of those concepts at all. It's important that the parties become educated about such issues so that they can consider how to address them as early as possible in the negotiations.

More about the Briefings

The Mission:Intangible Monthly Briefings are provided as a complimentary offering on the first Friday of each month. An overview of future programming is available on our News page. Detailed information and registration for the next briefing, Friday, 3 September, can be found on our Events page.

Target and Best Buy: Scoring own goal - not

Nir Kossovsky - Monday, August 09, 2010
In early July, Minneapolis-based Target Corporation (NYSE:TGT) made a $150,000 donation to a local business advocacy group, MN Forward. Six other Minnesota businesses, including Best Buy Co., Inc., (NYSE:BBY), followed suit with $100,000 gifts. MN Forward used the funds to run an ad supporting a socially conservative Republican candidate for Governor, Tom Emmer. The ad for Emmer, who faces an Aug. 10 primary, didn't mention that Emmer’s an outspoken opponent of gay marriages; rather, it focused on his opposition to taxes and spending.

The messenger apparently signaled more than the message. According to the Bloomberg Businessweek story, and what many claim is a self-inflicted reputation crisis,

gay-rights advocates saw the donation as a betrayal by Target, which has long cultivated support among gays by, for example, providing health benefits to domestic partners and sponsoring Twin Cities Pride, an annual celebration. Since the contribution became public, as required under Minnesota law, calls for a boycott and other protests have mounted on YouTube (GOOG) and Facebook. "We feel betrayed," says Jeffrey Henson of Portland, Ore., who started an anti-Target Facebook group that has almost 40,000 followers. Protesters have also stood outside Target stores with placards denouncing the company.


Target’s CEO, Gregg Steinhafel, issued three apologies since late July. The company has not commented on whether or not it will ask for the money back.

Politics aside, the question of interest to the Society is whether or not within all this noise there is a brewing crisis of reputation. According to the Society's lore, and the book, Mission: Intangible, there are three key business processes driving reputation value in the retail sector. These intangible assets are business processes that (1) promote ethical behavior, (2) deliver quality products (price is embedded in quality since it constitutes an expectation), and (3) advance sustainability. Walmart's issue with labor is an example of a reputation that is challenged in the ethical behavior department. But is a campaign contribution with an indirect link to a politically sensitive issue sufficiently material to impact reputation? And if it is so in some cases, can a company have a sufficiently resilient reputation to withstand the challenge?

Let's turn to the metrics. The Steel City Re Corporate Reputation Index does not reveal evidence of a reputation crisis arising from this event. Looking at a reputation metrics snapshot after the markets closed on the day of the rally, 5 August, neither Target nor Best Buy seem to show any material impact attributable to the political donation and the controversy arising.

Target’s reputation has been in the top slot for several months relative to the 16 peer companies in the Department Store sector. Being ranked in the 100th percentile  confers resilience, and so it is not surprising that the kerfuffle this past week, and the smoldering activity this past month, have had no apparent effect. This is confirmed by a quick peek at equity pricing. While TGT has been increasingly underperforming its peers with a -17% relative return over the trailing twelve months measured the week of the donation, and a -24% relative return on 5 August, it does not appear to be linked to the event. This past week, at the height of the protests, there was actually a small relative equity bump as TGT was underperforming the median of its peers by 25% the week before.

Yet even with a firm that may not benefit from reputation resilience, the event appears to been more smoke than fire. Best Buy’s reputation has been on a steady decline since late April when it peaked at the 76% percentile among the 124 companies in the Retailers sector. Over the past month, that decline continued with only a small step jump (drop) of two percentile points this past week. In terms of equity pricing, BBY has been underperforming its peer group for some time, but over this past week reduced that gap from -33% to -28%. In conclusion, based only on the above metrics, there appears to be no reputational consequence attributable to the political contribution.

But there is nevertheless a lesson. The event was not allowed to fester and apologies were quickly issued. As the Wall Street Journal summarizes, "The Target flap shows the potential downside for companies that want to get more involved in politics since a January Supreme Court ruling on campaign contributions. Brand-oriented companies, in particular, worry about getting embroiled in controversies that can tarnish their reputation."

RepuStars 2010 Aug 09

Nir Kossovsky - Monday, August 09, 2010

Weekly Reputation Index Metrics


At the close of trading 5 August 2010, the RepuStars and Repustars-II Composite Indices stood at 116.3 and 126.0, respectively. Over the past four weeks, the former Index has grown by 5.03%, while the latter has grown by 7.74%. The benchmark S&P500 Composite Index stood at 94.91 (rebased to 7 Jan 2005) and has grown over the past four weeks by 5.19%.

Since January 2009, the RepuStars and RepuStars-II Composite Indices have gained 30.61% and 49.80% respectively; the S&P 500 Composite Index has gained 20.82%. 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. 

St Joe: Heaven help us; alternatively, sue the #@!%*

Nir Kossovsky - Thursday, August 05, 2010
Reputation is a key performance indicator because it reflects the expected behaviors of stakeholders – the people who potentially buy goods and services, those thaat provide supplies on potentially favorable terms, the employees who potentially work willingly and frictionless, and the providers of credit and equity who may bet on the come. In short, reputation is the mediator of behaviors based on expectations.

St Joe (NYSE:JOE) a large Florida real-estate developer that owns 577,000 acres of land in Florida, mostly within 15 miles of the Gulf, reported that the April BP (NYSE:BP) Deepwater Horizon disaster resulted in huge losses for the company when hundreds of tourists canceled vacation plans to stay at its resorts. So it is suing Halliburton (NYSE:HAL) claiming damages evidenced by a 40% drop in its stock price and loss of $1 billion in market capitalization.
 
Neither the blog’s author nor the Society have a horse in the race. But we are interested in behaviors triggered by expectations because it is the underlying premise of the Society. This is it. There is a business case in managing the business processes (we call them intellectual properties) governing operational risk (call it governance, compliance, and risk management) through the deployment of intellectual capital that directly creates the impression held by stakeholders that we all call "reputation." Or stated simply, there is an upside to enhancing reputation, and a cost for losing it – and executives should have the tools to manage and monitor it. And if they don’t, the Society is here to educate. It's our mission

Turning to the metrics, we note that over the trailing twelve months, JOE’s reputatation ranking as measured by the Steel City Re Corporate Reputation Index slipped from the 10th percentile to the 0 percentile among 90 peers in the Land and Real Estate sector. Over this same period, the company has underperformed its peers by about 30%.

Looking more broadly at the sector, we note that the median reputation ranking for the entire sector rose over this period, and has been rising steadily over the past three months. Last the variance in the sector has been declining, making the reputational drop at JOE (or shown graphically, the lack of a rise) that much more significant.

Last, looking at JOE’s vulnerability to reputation volatility, we note that around 60% of its value is intangible; while the median fraction for the sector is near 0%. (The median fraction for all companies is about 65%; for the S&P500, the median fraction is around 82%).

The executive message points are that in firms whose value comprises a significant intangible asset fraction, stakeholder behaviors based on expectations – what we call “Reputation” – can have significant economic consequences. We will also note that JOE’s ranking has not been exemplary this past year. Our data (see book for details) show that when adversity strikes, firms with lower reputation rankings are unlikely to show reputation resilience and bounce back economically.

Recent Comments


SuMoTuWeThFrSa
   1
2
3
4
5
6
7
8
9
10
11
1213
14
15
16
17
18
19202122232425
2627282930  
 

Subjects

Archive