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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Reputation at AirAsia: Airworthy or hot air?

C. HUYGENS - Wednesday, January 14, 2015
When compliance fails and/or risk manifests, the business world turns to lawyers and communicators. These are the signs of a crisis. So is a stock price drop of 7%. Monday's Risk & Compliance Journal (blog) at Wall Street Journal (paywall link) began its 2015 Crisis of the Week series by asking three experts to opine on the communications effectiveness of AirAsia (OTC:AIABF) following the still mysterious crash of flight QZ8501 in late December. 

Richard Nicolazzo, managing partner of the eponymous Boston-based crisis communications company, raved over AirAsia CEO Tony Fernandes' media performance. "…we have never seen a CEO use social media so effectively in managing a crisis." Alas, being all aTwitter has its downsides when facts are either not at hand, or worst, against you. Nicolazzo calls it bad luck. "..the facts surfacing recently from the transportation ministry [that AirAsia 8501 lacked the required permits from regulators to fly that day] are emerging at exactly the wrong time."

Anthony Johndrow, chief enterprise strategy officer of Reputation.com is not at all bothered by the regulation matter. He sees CEO ownership of the crisis and the assurances that "all will come out at right time" as the deciding actions. Tweeting good words means good outcomes, assures Johndrow, "Mr. Fernandes is still putting himself out there. If he continues down that path–and does not get caught lying while doing so–AirAsia will be seen and talked about favorably across the region for years to come.”

The nay-sayer of the three is Andrea Bonime-Blanc, chief executive and founder of GEC Risk Advisory. Leave it to the lawyer/PhD to be deeply troubled by the lack of permitting and licenses, and the CEO's lack of awareness of same. In an 'emperor's new clothes' moment, she asks, "Is there a disconnect or is there synchronization between the company’s public relations and the company’s risk and compliance culture?" To her, the tweeting admired by Nicolazzo and hailed by Johndrow is another source of risk (think about the Tony of BP). "If…image and PR are mere marketing devices that do not reflect the reality within the company, crisis and reputation management will be less successful or even disastrous depending on the issue, with attendant loss of stakeholder confidence and ultimately value to the company."

To Bonime-Blanc's credit, signs of a reputation crisis were evident at the outset. On the first trading day following the crash, AirAsia shares fell 7.1%, their biggest one-day drop in more than three years according to Seeking Alpha. That's the magic number she cites in her reputation risk handbook as being a marker of a reputation crisis. There are more -- it is a handbook, not a leaflet -- but this is not a book review.

There is one other company on the hook. German insurer Allianz (OTCQX:AZSEY) is the lead re-insurer to the missing plane, and was the main re-insurer to flight MH370 that disappeared in March, as well as flight MH17 which was shot down in Ukraine. Hello Richard Nicolazzo, this trifecta is what bad luck looks like -- unless, of course, it is merely the face of suboptimal underwriting processes. Since underwriting is the core capability expected of Munich Re by its stakeholders, this string of aircraft losses creates reputation risk for Munich Re, too, as shown below.

Target: -6.0 percent solution

C. HUYGENS - Tuesday, May 06, 2014
The mobs wanted a head, and the Board of Directors gave it to them. And why not? If one believes opinion polls and the Twitterati, Target's reputation was sullied. Following age-old protocols, the biblical solution to appease the gods of media crises is to throw the CEO overboard.

Had the company's directors known about the reputation metrics discussed yesterday, things might have been different, an executive's life might have been spared, and Target would be worth 6% more than it was today at the close of markets. Below from BigCharts.com, equity values of Target and the S&P500 composite index shown in contrast.

Novartis: Doctoring data

C. HUYGENS - Friday, April 11, 2014
For a company, a reputational crisis is the threat that stakeholders will fundamentally change their expectations. A crisis is often precipitated by the disclosure of what amounts to failures in controls in the areas of ethics, innovation, quality, safety, sustainability, and security. In this sense, as exemplified currently by Novartis in Japan, adverse media and the public relations noise that follows provide a window into the operational failure in ethical controls and falsified clinical trial records.

Read more.

ExxonMobil: Much better than Paula Deen

C. HUYGENS - Tuesday, March 11, 2014
"Reputations are created and sustained by ongoing activities," explained Jonathan Salem Baskin, managing director of the reputation controls firm, Consensiv, in Forbes.com this past weekend. "Crises are simply the exposure of those behaviors." To illustrate the point, on parade were Paula Deen and ExxonMobil (XOM).

Deen took it in the chin for revelations of social improprieties, and according to Baskin, was sunk by her own PR-driven crisis communications efforts. "The premise that PR can “manage” those revelations is evidence of a misunderstanding and governing weakness [of PR]. Corporate reputation doesn’t belong to PR any more than the pixels on my computer screen belong to electricity."

ExxonMobil coated a good part of Arkansas in ooze last spring. The company managed the potential reputational impact through ongoing communications before the event -- the communications being largely an explanation of what they were actually doing operationally to minimize the risk of coating Arkansas and many other dry and wet places with black slime. "Successful reputation management requires ongoing communications, not a plan to “manage” crises."

Manage expectations, perform to those expectations, and reputation will be affirmed. So goes the theory. What do the reputational value metrics show emprically?

The reputational value profile of ExxonMobil, 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 94th percentile currently among 50 companies in the peer group. That's down a bit from the 100th percentile last spring, but from the chart it appears that the #1 slot changes hands regularly. The Consensus Trend, CT, is at a respectable level of below 3% and compared to peers, is about average. Its reputational health is strongly independent of the overall equities market and, while there is room for improvement, it's looking much better than Deen.



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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