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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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ExxonMobil and BP: Promises, promises

C. HUYGENS - Thursday, June 13, 2013
Nearly three years ago, BP suffered a near fatal reputational disaster precipitated by a series of technical failures leading to a massive oil spill in the Gulf of Mexico. There are many reasons why the technical failures led to the spill. More important, the accident was a reputational disaster because every stakeholder group held BP culpable of willfully breaching its commitment of responsible, sustainable drilling.

Yes, BP's 'Beyond Petroleum' campaign was wickedly effective. It established an implicit social contract, and stakeholder reasonably expected conformance. A key going forward lesson should have been, 'manage expectations.' ExxonMobil learned it after the Valdez disaster in Prince William Sound. Since then, they have strategically managed expectations, and their reputational value has benefited.

BP, on the other hand, appears to be making promises again. Its campaigns all but declare, "The environment has been restored, tourism is back, the company has made its operations safer and, perhaps most importantly, it spends more money in the U.S. than any of its competitors. It’s time to forgive and forget." Writes Jonathan Salem Baskin in Forbes, "Perhaps its reputation would have been far better served if it had used the Gulf spill as a chance to strengthen and reaffirm its stakeholder understanding of its business. It could enable them to make more informed decisions about energy, while laying the groundwork for more understanding and even forgiveness when the next crisis occurs. It might even enhance the tangible worth of its reputation."

Objectively, the metrics back Baskin's suggestion. The Steel City Re reputational value metrics show that XOM has a significant Reputation Premium, as termed by Consensiv, relative to BP.  In a peer group of 52 integrated oil companies, Exxon's reputation ranking is at the 100th percentile; BP's is the in 4rth quartile at 84%. In addition, BP's current RVM volatility, a measure of stakeholder consensus (Consensus Trend) is rising. Its not at a material, or "feverish" level by any means, but the movement of the metric concurrent with the communications campaign suggests not everyone is buying the story.

PetroChina: Reputation of a different color

C. HUYGENS - Monday, May 06, 2013
Corporate reputation is an expectation of corporate behavior. Reputation value is the product of that expectation. This is the natural course of things according to Huygens. And according to the book, Reputation Stock Price and You: Why the market rewards some companies and punishes others. And according to Jonathan Salem Baskin, Managing Director of Consensiv, who wrote today for Forbes about PetroChina.

"The last two months of PR have not been kind to PetroChina . The company’s former chairman has been implicated in a murder and money laundering. A key team of execs resigned en masse. A giant facility has stayed shut-down by an earthquake and safety concerns, while the environmental risks of a new investment have prompted riots in the streets. Earnings are down. It’s a textbook case for a corporate reputation crisis. Only not the way you think, since the company’s reputation has stayed all but unaffected. The reasons why suggest that marketers at public companies should look at corporate reputation less as an idea, and instead measure it as a series of behaviors." The full article is a good read.

Here are the corresponding Steel City Re reputation metrics underpinning Mr. Baskin's quantitative observations. Note the following:

Top left, the historic RVM volatility, a measure of the volatility of PTR's reputational value, was very low. Mr. Baskin explains why. Now it is in the 98th percentile among the 52 peers in the integrated oil sector. The reputational value is at the median, notwithstanding all the bad press.

Top right, the current RVM volatility is approaching 5% suggesting that an increasing number of stakeholders are expecting that the status quo is unsustainable.

BP: 45x reputation

C. HUYGENS - Thursday, May 10, 2012
The chairman’s letter in the annual report, signed 6 March 2012, is clear. “The board set three priorities for BP,” wrote Carl-Henric Svanberg. “Safety must be enhanced and embedded. Trust must be regained. Value must be created through a clear strategic plan”

Safety, now a factor in the executive bonus plan, is tangible evidence of the company’s strategic priorities of reinforcing safety and risk management, rebuilding trust and reinforcing value creation of its intangibles. At group level, the safety and risk management component includes targets for recordable injury frequency, loss of primary containment and implementation of change programmes. Rebuilding trust is focused on external reputation as measured by external surveys and internal morale as measured by surveys.

BP’s board considers reputation from two perspectives – the reputational risks to the group and the processes the company has in place to manage these risks. In 2011, the board reviewed external reputation data which looked at BP’s reputation in the UK and US. It also discussed the group’s communications strategy and its reputation management plan.

To assure that stakeholders know that BP is serious about reputation and its risk management, the annual report offers up the term 20 times in the 10k section 1A-Risks. The term also appears liberally throughout the balance of the document for a total of 45 mentions over twenty different pages in the 300 page document.

In what appears to be a growing trend first announced formally at UBS, but clearly preceded by BP, both reputation measurement and reputational risk are major issues at the Board level. This is why: as reported here earlier, firms that have superior reputations newly discovered can pickup an average of 6% of market cap, while firms that experience a reputational crisis can lose an average of 7%. Anything that can precipitate a 13% swing in value is bound to get the attention of a corproate board.

The Steel City Re reputation metrics for BP this week show the following trends: BP’s reputational value metric, a non-financial indicator of reputational value, is stabilizing with a near median volatility relative to its peers, and a long term forecast of stability. The company’s corporate reputation ranking, an indicator of relative standing, places the firm in the 81st percentile. Since the volatility indicators are neutral, the data do not yet indicate a near term boost in equity returns above the median for the peer group. After years of reputational volatility, it appears at this point that equity investors are waiting for further evidence of material risk reduction in RepRisk -- reputation risk. Nevertheless, considering where things were two years ago, BP has come "a long way baby."

BP: Volatility is good

C. HUYGENS - Saturday, December 10, 2011
If volatility is misery to most equities, and misery likes company, then (with apologies to Gordon Gekko), volatility, for lack of a better word, is good. At least if you are BP.

Notwithstanding its poster-child status for reputational crises, BP's trailing twelve month returns are slightly above the median of its peer group in the 40-member integrated oil company sector and its intangible asset fraction is up even though its relative reputational standing continues to slide.

The explanation for this unusual mix of reputational metrics is volatility. BP's exponentially weighted moving average volatility is now at 75%; its vector and velocity are gyrating wildly. But look at the industry peers.

Between and among the members of this sector, the volatility is less than 20% even while the sector as a whole, or at least its median value, is in the 70th percentile bracket relative to all 6000 companies measured by the Steel City Re corporate reputation index.

The data suggest that when a company's reputational issues trigger volatility, value is lost; but when that volatility begins to resemble the volatility of the market, then behaviors associated with market fear take over and reputational factors take on only secondary importance to residual value. In that context, where 70% of the median value of a company is linked to book assets such as oil, BP looks less risky.

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