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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Looming Reputation Risk Explosion

C. HUYGENS - Wednesday, December 20, 2017
The recent stock market rise has masked weaknesses that could lead to massive losses linked to corporate reputational crises in the coming year, according to research conducted by Steel City Re, which analyzes reputational risk and provides insurance to protect companies and their leadership.

A number of companies have undergone reputational crises in the past year and, as a result, have significantly underperformed compared to their industry peers. Despite this, they still have seen their market caps rise – temporarily quelling stakeholder anger and reducing the severity of losses one might otherwise expect. When the equities markets go through an inevitable correction, those companies will likely sustain the biggest losses and, once again, become the focus stakeholder hostility – leading to a potential avalanche of reputational attacks and related financial losses.

This study comes a year after Steel City Re research showed a 461% increase in corporate reputation-related losses during the five years leading up to and ending in 2016. Key findings of the new study, which can be found here, include:

  • Factors leading to reputation related losses have become more extreme, including the weaponization of social media.
  • A rising stock market has created a false sense of security among certain companies and their stakeholders.
  • Prominent activist investors, often the catalyst for stakeholder anger, have been less effective, but smaller activists with less capital have emerged, targeting smaller companies.
Looking to 2018, a market correction will expose companies with reputational issues, compelling activists to attack and stakeholders, the media and political figures to unleash pent-up anger at corporate executives and board members. As a result, companies will experience losses in market cap, revenue, earnings and margins that could as much as double those experienced in the past year.

Dr. Nir Kossovsky, CEO of Steel City Re, said: “Warren Buffet’s saying that you can only tell who’s been swimming naked when the tide goes out is an apt description of the current environment. After witnessing the reputational bloodbath of 2016, quality companies committed to emerging unscathed in 2018 must communicate the improved quality of their governance and build reputational defenses that will insulate them when the inevitable onslaught occurs.”

The risk of reputation value loss was determined through a multi-year loss simulation experience based on a standard insurance parametric model of reputational value metrics. The actuarial database comprises approximately 5.65 million measures derived from a median of 7,313 public companies weekly for 823 continuous weeks.

Xerox: Sharks are Back!

C. HUYGENS - Wednesday, December 13, 2017
Xerox -- no repellent, sharks return! 20% of US companies targeted in 2017 previously targeted in past 4 years. Qualifying and being underwritten for Reputation Assurance, often called a "warranty on governance," can help ward off attacks.

The US printer and photocopier company bowed to pressure from Icahn nearly two years ago to split itself into two, a hardware and services business.

Read more in Financial Times.

Read more on activist investors and reputation risk.

Activist Tells Better Story Than Marketing Pro P&G

C. HUYGENS - Thursday, November 16, 2017
Activist Trian tells better story and wins proxy battle as P&G fights without shark repellent.
"Nelson Peltz has claimed a board seat at Procter & Gamble based on a recount delivering him a thin margin of under 43,000 votes, in a dramatic twist to one of the largest and most expensive proxy battles on record...P&G shares rose 3 per cent in after-hours trading on Wednesday."

Read more in Financial Times.

Read more on Procter & Gamble.

Battles are Public and Personal Activist Investor Warns

C. HUYGENS - Sunday, October 22, 2017
Talk about personal reputation risk, ADP CEO Rodriguez recalls activist investor Bill Ackman telling him,

“I know you don’t like the media, but I do and I’m really good at it,” Mr Rodriguez said. “And if this gets into a public battle, it’s going to be bad for you personally, it’s going to be bad for the company, but I’m fine with it because — and he said this — I’m told that I’m only second to Donald Trump in terms of number of clicks on the internet, and hence you will lose if there’s a public relations battle.”

Read more in Financial Times.

Read more reputation risk and activists.

A “Pyrrhic Victory” for P&G?

C. HUYGENS - Wednesday, October 18, 2017
P&G chief executive David Taylor spent at least $35m as the company fought to prevent Nelson Peltz taking a seat on its board

“…the message from large investors is clear: Mr Peltz’s questions will not go away. ‘The bad news is that [Peltz] is right,’ says Scott Galloway, marketing professor at New York University’s Stern School of Business. ‘The good news is that P&G recognises that.’”

Read more in Financial Times.

More on reputation and Procter & Gamble

P&G Has No Credible Shark Repellant.

C. HUYGENS - Saturday, September 30, 2017
When sharks attack reputation, a warranty on governance--shark repellent--improves the odds of a board prevailing. P&G does not have Steel City Re’s Reputation Assurance.

"The odds of activist investor Nelson Peltz’s winning a board seat at Procter & Gamble are improving after the two most influential independent proxy advisory firms, ISS and Glass Lewis, both recommended shareholders should vote in his favour."


Read more in Financial Times

More on P&G: http://www.iafinance.org/mission-intangible?TagID=11231

Regulators Leverage Fund Managers to Up Pressure On Boards

C. HUYGENS - Tuesday, September 05, 2017
Increasing pressure from regulators and politicians worldwide to.

“…hold companies to account on excessive executive pay, a lack of gender diversity and inaction on climate change. ”

Read more in Financial Times.

Whole Foods: Another Activist v. CEO Battle

C. HUYGENS - Thursday, June 15, 2017
Whole Foods’ John Mackey is at war with activist fund Jana

“They’re greedy bastards, and they’re putting a bunch of propaganda out there, trying to destroy my reputation and the reputation of Whole Foods, because it’s in their self-interest to do so.” ...Whole Foods has acknowledged problems — same-store sales have been falling for almost two years — but says it has a turnround plan and has promised to proceed with “a greater sense of urgency”. Last month it replaced its chief financial officer, chairman and several board members.


Read more in the Financial Times.

Activists Seek to Exploit Misplaced Expectations

C. HUYGENS - Thursday, May 18, 2017
A tsunami of emotionally charged disappointed stakeholders expected: #reputation #risk looks like this.

In a letter to investors earlier this month, explaining why they were opening to new capital, Mr Singer said he believes “that there has never been a larger (and more undeserved) spirit of financial market complacency in our experience”.


Read more from the Financial Times:

Activists Play the Nuclear Option

C. HUYGENS - Wednesday, May 27, 2015
The existence of the shareholder right to nominate directors "should obviate the need for its use" against rational board members, explained Zach Oleksiuk, head of the corporate governance team for BlackRock America. The activists' bold strategy would have won approval from none other than the fictional presidential adviser in the cold war cult classic film, Dr. Strangelove.

In the war for the hearts and minds of institutional and retail investors, what makes proxy access so effective is that it is a gut-wrenchingly simple message for board members to understand. And right now, Directors have strategic countermeasures that send an equally compelling message to the activists, that they too have a strategic means of securing the hearts and minds of institutional investor. They allocate dividends, and buy back shares.

Read more and see an amusing film clip at Consensiv.

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