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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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.

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 financial, legal, regulatory and reputational risks for Duke Energy are serious and mounting," Calpers corporate governance director Anne Simpson and New York City comptroller Scott Stringer wrote in their open letter. according to the Financial Times. 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.

Ebay: Icahn is cranky

C. HUYGENS - Monday, March 10, 2014
Last week, activist investor Carl Icahn opined that Ebay was the worst governed company, ever. A small discussion broke out on the LinkedIn Board and Advisers site.

Icahn is entitled to his opinions. What do the reputational value metrics show emprically?

The reputational value profile of Ebay (EBAY), according to Consensiv and based on Steel City Re's reputational value metrics, is shown below. The Reputation Premium is near the top of the heap at the 98th percentile currently among 66 companies in the peer group. The Consensus Trend, CT, is at a respectable level of 3.2% and compared to peers, is below average. When the reputation premium is high, a low CT is good. Ebay's reputational value shows an average correlation with the broad market;  overall, it is rather healthy.

The data suggest that as far as most stakeholders are concerned, Icahn being a noisy exception, Ebay is doing just fine at setting and meeting expectations. Its stakeholders clearly appreciate and value the performance.



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).

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