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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Big oil executive: “I don’t want to work for the tobacco industry”

C. HUYGENS - Tuesday, April 07, 2015
There are four reasons the major oil and gas companies are undertaking a substantial review of their policies on climate change, writes Nick Butler, who is formerly BP's Group Vice President for Policy and Strategy Development. Reading Butler's comments in Monday's Financial Times, I think the 4 reasons really reduce to 2: they're not happy with the status quo, and they are grappling with reputation risk.

1. Companies are unhappy with their current policies. Cap and trade won't work.
2. A critical mass of stakeholders within the industry really takes climate change seriously, public discussions will again be lively with the Paris conference this December, and companies realize "reputation does matter, not least for morale within the company."

Recounts Butler: "As one rising executive in one of the companies said to me last week – 'I don’t want to work for the tobacco industry.'”

Read more (paywall)

Big Oil's Lessons for Big Banks

C. HUYGENS - Monday, August 04, 2014
The Financial Times reported July 27 that Fed officials have asked banks to see what they might learn from other sectors “that have gone through crises or reputational 
issues”…wait for it…”such as the oil industry.” The ExxonMobil reputation value and risk charts below show why it is sound advice. Read more here.

Noble Energy: NBL is NGE

C. HUYGENS - Monday, June 10, 2013
The energy sector is hot.  Sure, its chief product is combustible or otherwise exothermically inclined. But, in a financial sense, the reputation of the sector  -- the economic benefits to energy sector companies arising from the social contract between them and their stakeholders -- is equally feverish

Body temperature, as most everyone knows is a measure of health. It is one of a handful of vital signs that serves as an early indicator of a health problem.

Equally so, fever is an indicator of a reputational health problem. The measure of reputational fever is the Consensus Trend, technically, an exponentially weighted moving average volatility of the company's reputational value metric. Causes of reputatational value fever include:

Unexpected CEO change
Conspicuous shareholder activism
Poor M & A decisions
Poor safety record
Loss of investment grade credit rating
Inability to access capital at competitive rates
Poor fleet utilization
Concentration of assets
Poor Return on Capital and Allocation decisions

Noble Energy, the top ranking energy sector firm in the June 2013 Consensiv 50 rankings, has been spiking a fever ever since the monthly rankings were released. Mind you, Noble didn't actually place in the top 50. It ranked around 200, but received notice in that it topped the league table for its sector which is generally having reputational value problems.

In the two weeks since Noble Energy was recognized, it's come down with a fever. Actually, it is both spiking a fever and losing reputational value, what Consensiv terms its Reputational Premium.  The Vital Signs chart (top row, left) shows that Noble Energy's reputation ranking has slipped from the #1 position among its peers to the 94th percentile. Its current RVM volatility is in the 77th percentlle among the 191-members of the Oil and Gas Production sector peer group. The fever spike is best seen in the Current RVM Volatility chart (top row, right). RVM is a non-financial measure of reputational value calculated by the reputational value insurer, Steel City Re. Values in excess of 7% are associated with, or are leading indicators of, material changes in market capitalization. High values reflect a lack of stakeholder consensus. Over the past two weeks, Noble has spiked to 15%.

Here's how financial analysts view the company, as summarized by Watchlist News:

Noble Energy (NYSE: NBL) had its price target cut by Barclays Capital from $140.00 to $70.00 in a research report sent to investors on Tuesday morning..A number of other firms have also recently commented on NBL. Analysts at Raymond James upgraded shares of Noble Energy from a market perform rating to an outperform rating in a research note to investors on Thursday, May 30th. Separately, analysts at JP Morgan Cazenove downgraded shares of Noble Energy from an overweight rating to a neutral rating in a research note to investors on Thursday, May 30th. Finally, analysts at TheStreet reiterated a buy rating on shares of Noble Energy in a research note to investors on Friday, May 24th. One investment analyst has rated the stock with a sell rating, eight have given a hold rating, twenty-two have issued a buy rating and two have assigned a strong buy rating to the company’s stock. Noble Energy currently has an average rating of Buy and an average target price of $107.13.

The analysts are confused. So are other stakeholders. The balance of the reputational measures, shown below, point to a negative future. Noble Energy, ranked at 200, may have been the best of the energy sector. But NBL, as it is known by its ticker, is apparently NGE (Not Good Enough).



Drilling: Move along now, nothing to see here

C. HUYGENS - Sunday, June 09, 2013
For the hard of hearing, the professional media and independent blogosphere helpfully offer signal amplification. Wag the Dog’s Robert DeNiro knows of what he speaks when he insists, “It must be true. I saw it on TV.” Conversely, there are believers in the existential paradox that if something happened, and know one hears about it, etc. (If a tree falls in the forest…).

Huygens, who minored in the philosophy of science, and is an American Pragmatist, is less of a believer and more of an observer. Yes, the tree may have fallen and not been heard (by a human). But just as chaos theory posits that a butterfly can trigger a hurricane, the falling tree can trigger secondary and tertiary reactions. Even without the media, these effects can amplify the consequences of an event.

Consider, then, the efforts by the gas drilling industry to keep a problem under wraps, as Bloomberg’s 7 June headline suggests: "Drillers Silence Fracking Claims With Sealed Settlements." With no more success than officer Frank Drebbin, and in no way to argue the merits of the underlying claims, the industry’s efforts to mute awareness is enhancing interest and, critically, reputational value uncertainty. Observably, the net cost is heavily discounted enterprise value.

Consensiv, the reputational value consultancy, has determined that when uncertainty in a company’s reputational value as measured by its exponentially weighted volatility, or as Consensiv calls it, its Consensus Trend, exceeds 7%, material value changes are just over the horizon. Basically, the Consensus Trend is an indicator of reputational health.

As of 7 June, more than 25% of the 191 companies comprising the Oil & Gas Production peer group were febrile with Consensus Trend values in excess of 10%. As a result, the entire sector is experiencing reputational value suppression, reduced Reputation Premium in Consensiv’s language, as measured against the 7200 companies for whom weekly reputational value metrics are available.

Silenced, perhaps, but not unobserved.

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