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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Stop the Silliness

C. HUYGENS - Thursday, February 19, 2015
Let's stop confusing reputation risk management with mere likability, please. Read more in Risk & Insurance.

Brand v. Reputation: GM edition

C. HUYGENS - Thursday, April 17, 2014
An operational failure in business process controls or supply chain integrity management can help sharpen the difference between the value of a reputation, and the value of a brand. For a company like GM being roiled by evidence of longstanding failures in governance, controls and risk management, the difference implies two very different future courses.

Jonathan Salem Baskin, Managing Director of the reputation controls company, Consensiv, explains:

If corporate reputational value were nothing more than immediate public opinion — like brand awareness — then the company could rely on consumers’ ability, if not overt desire, to forget the past and literally “buy” the company’s latest sales pitch. But reputation is an asset based in operational reality, not the minds of consumers, and GM faces a long list of stakeholder expectations, and resulting valuations, that won’t be easily erased or forgotten. From processes to supply chain relationships, analysis and reporting thresholds, to all of the substance of its relationships with its various communities have been called into question by the ignition crisis, and those stakeholders are and will make future decisions based on it.

Read more.

Brand v. Reputation: Auto repair edition

C. HUYGENS - Thursday, April 03, 2014
Tuffy, a brand of auto-repair franchises, acquired a terrible reputation affirmed when its local franchise owner was arrested on felony charges for stealing from customers. A new owner bought the brand. Then he had to rebuild its reputation.

Read more.

Planning to attend RIMS 2014 Denver 29 April? Come learn more on enterprise reputation risk.

Brand v. Reputation: CSI edition

C. HUYGENS - Wednesday, April 02, 2014
A buyer of illicit drugs with a reputation for toughness meets stakeholder expectations by stabbing repeatedly a dealer who failed to honor his commitment to sell. Not to do so would create reputation risk and in certain markets, reputation risk can be costly, indeed.

Read more.


Planning to attend RIMS 2014 Denver 29 April? Come learn more on enterprise reputation risk.

Brand v. Reputation: Nissan edition

C. HUYGENS - Tuesday, April 01, 2014
British car buyers would rather buy Japanese-made Japanese branded cars than British-made Japanese branded cars. As the Consensiv blog explains, it was the reputation of Japanese workmanship and quality that sold the cars, not the brand.

Read more.


Planning to attend RIMS 2014 Denver 29 April? Come learn more on enterprise reputation risk.

Brand v. Reputation: NJ Edition

C. HUYGENS - Friday, March 14, 2014
An opinion survey's purpose is to discover what respondents think, not to influence or alter it. Actually, beyond "think," the real purpose is to obtain an indication of how the respondents will behave; e.g., vote for a candidate or buy a branded product. The problem with surveys is that what people think about candidates or brands is not necessarily an indication of what people will do about a candidate or product. The "moment of truth" can be shocking when expectations fed by opinion surveys are dashed by the realities of behavior as was demonstrated so vividly by Karl Rove in the 2012 US Presidential election.

Brands are about emotions and connections; reputations are about behaviors. To wit, A mere 38 percent of voters in New Jersey approve of Governor Chris Christie's post-Sandy efforts, more than half find him culpable for "Bridgegate," and yet 90 percent of respondents to a survey said they would vote for him again. So how badly damaged is the Governor's reputation?

Read more.

Brand, Reputation and Risk Management

C. HUYGENS - Monday, February 17, 2014
Here's one more entry in the ongoing series on the difference between brand and reputation. In this most recent posting, Jonathan Salem Baskin from Consensiv explains to a Risk Managers' group on Linked-In why understanding the difference is important...to risk managers. Read more here.

Beam: Consumed

C. HUYGENS - Thursday, January 16, 2014
It seems like only yesterday that Huygens read about Beam, Inc., the global alcoholic beverages company, and how its annual regulatory disclosure on reputation risk (10K item 1A) wasn't helpful to investors. According to the study reviewed in Agenda, the Financial Times service, Beam didn't seem to understand that its reputation emerged from its operations. Rather, the firm seemed to confuse reputation with brand. The study suggested that better risk disclosure, evidencing better operational controls, could boost value.

For a company that understood how operations underpinned reputation, this seemed like an opportunity to discover hidden value. Take a company like Beam with a well known brand and significant reputational value, and improve it even further by reducing operational risks.

And so it came to pass Monday that Japan's Suntory purchased $10B Beam. From Reuters:

Suntory Holdings Ltd SUNTH.UL on Monday said it would buy U.S. spirits company Beam Inc (BEAM.N) for $13.6 billion cash in a deal that would make the Japanese company the world's third-largest spirits maker.

Including the assumption of Beam's net debt, the deal is valued at $16 billion. It brings together Beam's Jim Beam and Maker's Mark bourbons, Courvoisier cognac and Sauza tequila with Suntory's Yamazaki, Hakushu, Hibiki and Kakubin Japanese whiskies, Bowmore Scotch whisky and Midori liqueur.


Full story here.


The reputational value profile of Beam, according to Consensiv and based on Steel City Re's reputational value metrics, is shown below. It is worth noting that while the Reputation Premium is near the top of the heap, the Consensus Trend, CT, has been hovering often above the median of 55 companies in the peer group.



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).

Hilton: Another one gets it wrong

C. HUYGENS - Tuesday, December 10, 2013
The SEC-required proxy statements, the 10-Ks, exist to level the playing field for all investors. After all, transparency is a driver of market trust and liquidity. Item 1A, Risks, was added by the Sarbanes Oxley legislation in furtherance of that noble goal, and as part of the reaction to large scale shams such as Enron and WorldCom.

Reputation risk is disclosed in many 10Ks. Just among the S&P500, the disclosure rate for reputation risk has risen from around 8% of the firms in 2009 to 66% of the firms in 2013. A study of the materiality of those disclosures reported earlier this year that the consumer sector seems to have it all wrong, confusing reputation risk with brand risk. Read the study.

(Ironically, many regulators are getting it wrong too...which eventually will have a materially negative impact on systemically important financial institutions (SIFI). Read more on getting it wrong.)

The problem with getting it wrong is not semantic. Rather, getting it wrong is fostering the belief that the path to a better reputation is to better manage social media, or any media for that matter. It focuses attention and resources in the wrong place. It is wrong because the media-associated noise is an epiphenomenon; what needs to be managed are the business processes underpinning reputation comprising ethics, innovation, safety, sustainability and security. Read more on the pillars of reputational value.

Constituent members of the consumer section continue to get it wrong. The most recent entrant into the league of wrong-thinking companies is the soon-to-be-public Hilton Hotels. Read more on Hilton.

Goldman Sachs: Reputation is just fine, thank you.

C. HUYGENS - Thursday, October 31, 2013
Last week, an article in the New York Times' Dealbook declared that Lloyd C. Blankfein presided over the implosion of Goldman Sachs’s brand and reputation. Really?

Written by Jesse Eisinger who is a top-notch investigative financial journalist working for ProPublica, the charge against the company's Chairman and CEO should stick. No slouch, he and colleague Jake Bernstein were awarded in 2011 the Pulitzer Prize for National Reporting for a series of stories on questionable Wall Street practices that helped make the financial crisis the worst since the Great Depression. He and Bernstein were also finalists for the 2011 Goldsmith Prize for Investigative Reporting for the series.

Here's the funny part. Eisinger documents all the operational successes Goldman Sachs appears to be realizing and the remarkably light touch regulatory opprobrium it navigated -- all empirical proof points that stakeholders are valuing Goldman Sachs' reputation. He concludes that reputation must be irrelevant, quoting Yale legal scholar Jonathan R. Macey. “Reputation is no longer an asset in which it is rational to invest,” writes Macey in his recent book, “The Death of Corporate Reputation” (FT Press).

The problem and source of Eisinger's congnitive dissonance, as followers of the blog picked up from the opening paragraph, is lack of clarity over the meaning of reputation. It is not brand, and it can not be understood the way brand is understood -- through opinions and sentiment surveys.

Andrew Carnegie, one of Pittsburgh's most famous capitalists, explained, "As I grow older, I pay less attention to what men say, I just watch what they do." Sentiment and opinion surveys only capture what 'men' say. To appreciate a company's reputation, you need to watch what its stakeholders do. Everything else is just marketing.

Turning to what stakeholders do as evidenced by the Consensiv metrics, Goldman Sachs' Reputation Premium is at the 86th percentile having bounced near the peak these past few months. Its Consensus Trend, the uniformity with which stakeholders agree on its Reputation Premium, is high with a scatter of only 1.2%. Both values stand out as extraordinary when compared to the 80 peers in the Investment Banks/Brokers sector. The Consensus Benchmark is at a generous 10.5% indicating that the normal variance of reputational value and the associated ability of the company to exhibit resilience in the setting of bad news, is at an optimum.

Notwithstanding all the stories over the past few years, none of which present a more sinister image of Goldman Sachs than Matt Taibi's "giant vampire squid," the customers flock to its doors, employees love working for the firm, its costs of capital are reasonable, and the greatest cost of all -- regulatory burden -- somehow seems lighter.

Yes, the overall reputational health, as Eisinger points out in detail, is quite good.



For more background on the Consensiv reputation controls, click here. To view the October 2013 reputational value league table at CFO.com, click here.

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