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's Impact on Human Resource Expenses

C. HUYGENS - Thursday, November 20, 2014
Researchers found that companies with damaged reputations face increased recruiting costs due to the greater difficulty to source and attract new hires, particularly when recruiting women and more experienced workers. But these costs are far from the greatest of a company’s troubles. “While recruiting expense increases are in the millions of dollars, this great expense is literally dwarfed by the billions of salary cost differential,” the study reads. “The cost of recruiting and salaries added to any expenses associated with a reputation damaged by an environmental scandal, for example, can be disastrous to a company’s bottom line.”

Read more from Risk Management Monitor.

Yahoo: Reputation by the numbers

C. HUYGENS - Thursday, March 06, 2014
Ken Goldman, CFO of Yahoo, was answering a question about the company's nagging human resource problem. ”When we came to the company, and we talked about acquisitions…frankly, companies did not want to be acquired by Yahoo…and for us to even acquire them we would have to pay a ‘Yahoo premium’ because they didn’t want to come here. That’s not the case any more.”

According to Yahoo's chief numbers guy, Marissa Mayer fixed Yahoo's #1 problem. Unfortunately, the actual numbers suggest otherwise. For while the annual report indicates Yahoo received in 2013 more than double the number of job applications it received in 2012, the applicants appear to be following the money. According to the career site Glassdoor, Yahoo was the third-highest-paying company in Silicon Valley for engineers last year, behind Juniper Networks and LinkedIn.

There's a reputation value link to this, and just like a recent note on Warren Buffett, it tracks back to costs. The thing about being a company with a great reputation is that this intangible asset usually provides savings on human resources costs. If a company has to pay an objectively measured premium to recruit employees, then the company's reputation (among labor) is not great.

CFO's should know better than to speak against their numbers. They're supposed to trust numbers - the same numbers trusted by the capital markets. Numbers are spin-free objective measures. It's the point Theodore Porter makes in his book, Trust in Numbers. Numbers are most trusted in environments where elites are weak, where private negotiation is suspect, and where trust is in short supply.

Let's look at some more Yahoo numbers. Yahoo is trading at 31 times earnings, just behind Google's 34x and way ahead of Microsofts' 14x. Those numbers are trustworthy, and they say investors have very high expectations -- arguably, frothy.

The expectations of other stakeholders are reflected in reputation metrics. Like other trusted numbers, they're based on objective quantitative criteria. The good news for Yahoo's stakeholders is that the 85th percentile ranking for the Reputation Premium among 137 peers indicates plenty of upside. It also may indicate that the reputation is not as strong as it could be for a company this prominent, and may explain the salary premium the company has to pay. (Paying top dollar and not making the 50 best places to work says all that another way).  The 4.0% value for the Consensus Trend, CT, suggests that stakeholders are fairly confident that Yahoo's reputation is properly valued.

The upside, therefore, is less likely to be realized, and that will disappoint the equity investors.



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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