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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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Weight Watchers: What did you expect?

C. HUYGENS - Saturday, March 28, 2015
Firms with quality governance and better reputations generally have distinct advantages in the marketplace, including: stakeholder behaviors that create greater enterprise value through shorter sales cycles, larger unit volumes, and customer willingness to accept premium product pricing; better terms from employees and vendors for services, and more favorable terms for capital from creditors and equity investors.  Better reputations also equate to greater resiliency and faster recovery.  For example, adverse operational events affecting companies with better reputations are less likely to blossom into reputational crises.

Representing the other end of the spectrum is Weight Watchers, WTW, which is not meeting stakeholder expectations that are already diminishing. Explained the Washington Post, "The rise of smartphones opened an entire ecosystem of new apps that could suggest diets, count calories and track progress, undercutting Weight Watchers’ longtime business model. And because many are free, they’re gobbling up the company’s most important audience: trial-minded newbies looking for a change but hesitant to fully commit."

The numbers are bleak. The indicators of reputation value and uncertainty are heading down and up respectively signaling ongoing value loss. Significantly, that loss was partially masked by the overall rise in equity value. (continued below).

But a quick look at the measures of relative ranking, not usually presented in these quick vignettes on the IAFS blog, clearly point to a steady progressive erosion in stakeholder value in the firm, or more specifically, the firm's governance as a proxy for the firm's overall ability to provide valued services.

Accompanying the deteriorating relative ranking of WTW's reputational value is the sudden rise in stakeholder uncertainty...the culmination of a trend best seen in the chart below showing a 6-standard deviation erosion (6-sigma loss) in reputational value based on the values over the prior 2 years. This is the quantitative view of a reputational value crisis.

The blue line with diamonds is WTW reputational value metric. The five gray lines represent loss gates approximating 2,3,4,5 and 6 standard deviations of WTW's two-year historic mean.

In April 2014, analysts with Seeking Alpha wrote, "At current prices, WTW represents an opportunity for the enterprising and patient investor to acquire a fractional interest in a best-in-class, high return business with excellent prospects that has temporarily fallen out of favour. The Fat Lady is not singing."

In hindsight, it appears she was.

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