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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Unrealistic Expectations Create Risk of Earnings Torpedo

C. HUYGENS - Saturday, September 09, 2017
A reminder of the value of corporate governance and prompt candid disclosure of bad news especially when expectations are unrealistic.

“…the longer a company takes to come clean, the bigger and more damaging the ‘earnings torpedo’ that hits its share price and its reputation once the true numbers come out.”

Read more in Financial Times.

Reputation Risk Due to Ethical Controls Failure

C. HUYGENS - Monday, July 31, 2017
Germany's big three groups, Volkswagen, Daimler and BMW, and VW units Porsche and Audi have been accused of holding secret meetings and colluding on technology. There are controls to prevent such ethical breaches. How can they fail?

“German managers are less aware of the financial consequences of wrongdoing than their US counterparts,” she says. There is less of a recognition that fines imposed by regulators for lawbreaking “can sometimes be so big they can ruin the company”.

Read more in the Financial Times.

Supply Chain Needs More Than Hamburger Helper

C. HUYGENS - Monday, September 08, 2014
We've all seen the movie. Somewhere in the supply chain a lurking risk manifests in a very public way. Business unit profits are wiped out, corporate risk management costs skyrocket, and corporate directors are pilloried by activist investors. The insurers of the world, without whom supply chains would ground to a halt, are demanding thoughtful action.

Read more.

BNP Paribas: Reputation risk realized

C. HUYGENS - Tuesday, September 02, 2014
In late June, the Financial Times  headed an article on the regulatory travails of BNP Paribas with the line, "Biggest threat to BNP Paribas could be to its reputation." That threat is apparently being realized.

In the article, journalists Michael Stothard and Martin Arnold reviewed the details of about $30 billion in trades between 2002 and 2009 with Sudan, Iran, and Cuba that had run afoul of US banking sanctions. Consensiv's analysis based on Steel City Re's data (below) shows a rock bottom reputation premium, peak reputation value risk, and a net reputational health of only 10% of the company's potential. The company's equity is down about 9% ($7.5B) since the beginning of the year and the indicated loss attributable to reputation from that is around $5B.

Wells Fargo: Crediting the regulators

C. HUYGENS - Thursday, December 12, 2013
In a comment on Wells Fargo last week, reputation consultant Jonathan Salem Baskin wrote, "the Feds are forcing Wells Fargo to improve its reputation and, as a huge consumer-facing brand because of the nature of its business, it can’t help but communicate that operational rigor to its customers." Do the metrics bear him out?

The Consensiv reputation metrics, powered by Steel City Re's measures of reputational value, reflect stakeholder expectations and their economic effects. Of the 49 firms in its sector, Major Banks, Wells Fargo has generally hovered above the third quartile of the metric, Reputation Premium. Its most recent value was the 88th percentile. Its stakeholders are confident that this premium is appropriate as evidence by an extremely low Consensus Trend metric of 1.6%. This is especially notable since the 3rd quartile of the Consensus Trend measured off the scale at nearly 300%. The Consensus Benchmark,which is based on a one-year average standard deviation of the Reputation Premium, indicates at 8.1% a previously more volatile course. In short, Mr. Baskin is correct; it appears, the "Fed's made 'em do it."



For more background on the Consensiv reputation controls, click here. To view the November 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here.

Truth in Advertising

C. HUYGENS - Tuesday, October 01, 2013
Advertising can be a powerful contributor to better and more lasting relationships with consumers and other constituent groups, but it requires a new, creative approach to how it addresses truth. Jonathan Salem Baskin, moderator of the Mission Intangible Monthly Briefings, enumerates them:

(1) Get back to communicating functional benefits
(2) Stop pretending you’re talking in a vacuum
(3) Reaffirm the goal of getting people to like your product, not your ads
(4) Set expectations, not make promises

Reputation is a product of how expectations are set, and how they are met. Read more.

Governance: Costs of failure rise

C. HUYGENS - Friday, January 04, 2013
Reputation is all about meeting stakeholder expectations. Regulators are the often forgotten stakeholder. Other stakeholders, such as customers, employees, suppliers and creditors express their satisfaction with expectation management on well recognized lines of a company's profit and loss statement. Regulators, however, get a special line: extraordinary expenses. As explained in Reputation Stock Price and You: Why the market rewards some companies and punishes others (2012, Apress), a company's reputational value is reflected in these lines and thus ultimately, stock price.

From the Conflict of Interest blog, we share the updated list of the top ten greatest extraordinary expenses arising from a failure of meeting regulators' expectations (read, failure of governance.)

- BP – $1.256 billion (environmental and related offenses) (2012)
- Pfizer – $1.2 billion (marketing offenses) (2009)
- GlaxoSmithKline – $956 million (marketing offenses) (2012)
- Eli Lilly – $515 million (marketing offenses) (2009)
- AU Optronics – $500 million (antitrust) (2012)
- Abbott Laboratories – $500 million (marketing offenses) (2012)
- Hoffman-LaRoche – $500 million (antitrust) (1999)
- Yakazi – $470 million (antitrust) (2012)
- Siemens – $450 million (FCPA) (2009)
- Halliburton/KBR – $402 million (FCPA) (2008).

As the blog's author, Jeff Kaplan, a partner with Kaplan & Walker LLP, notes, "What is striking here is that fully half of the ten largest federal corporate criminal fines in history were imposed or agreed to in 2012. I cannot recall another year with so many new cases on the list."

In yesterday's Mission Intangible blog note, guest contributor Dr. Michael Greenberg articulated principles for better governance. Today's note punctuates that note with a reminder of the cost of failure.

Governance: Resolved to do better

C. HUYGENS - Thursday, January 03, 2013
Guest comment by Dr. Michael Greenberg.

We're once again heading into a new year. It’s the season of resolutions, of reflecting and taking stock, of setting new goals and getting back into shape. Most of us tend to think of this kind of New Year’s activity as a personal process, but it applies just as readily to corporations and their executives. Most avenues of human endeavor can benefit from periodic self-assessment, re-evaluation, and course correction. This is no less true of corporations, and of our collective economic behavior, than it is of individuals in their personal lives. For corporations, of course, the process of making New Year’s resolutions will tend to focus less on dieting, physical fitness, and personal improvement. Rather, the focus for corporate self-assessment typically starts with a few basic questions. Does our strategy and mission continue to make sense in the current operating environment? Are we doing what we need to do, in order to meet our performance goals and achieve success? And what can we do better as an organization, to improve our performance on key metrics?

A related issue that frequently comes up when I talk with executives involves governance. One striking thing I’ve noticed is that even though lots of senior executives express concerns about governance, they often use the word “governance” in very different ways, such that two people superficially using the same language are often actually talking about very different things.

Sometimes governance comes up in the context of a very pragmatic, corporate plumbing-type question: How do we set ourselves up in order to be more effective in accomplishing whatever it is that we’re trying to do? The embedded assumption is that governance is tied to management structure and control, power sharing, and information feedback within the organization. Good governance, in this sense, is synonymous with effective management – where an organization is optimized to carry out its function, then its governance is superior.

A very different view of governance comes up when you talk to corporate lawyers and directors. These folks often think of “governance” as being defined by “all the stuff that boards do.” Put another way, this is the kind of governance that involves board oversight of senior management, exercised on behalf of shareholders. For directors, this perspective on governance invites a bunch of performance assessment questions pertaining to management. And for shareholders, it invites a bunch of performance assessment questions pertaining to the board itself. The lawyers, meanwhile, often focus on the mechanics of how boards carry out their responsibility, and what the law requires them to do. Frequently overlooked by all is the fact that a board is ultimately just a group of people, who may be more or less interpersonally and technically competent, in working together to carry out a common purpose. Again, governance can be more or less capable and effective, on any of these dimensions.

Still another perspective on governance emphasizes the strategic and operational element. When a large group of people come together to execute a common purpose, who contributes to deciding what that purpose is going to be, and what the best way is to achieve it? How often are those basic decisions reviewed and revisited? How does senior management reach out to the rest of the organization, in order to mobilize everyone around a common vision? These are questions that go to the heart of what the organization actually does, and whether its form and function make sense over time.
And then, of course, there is a cynical perspective on governance, which I sometimes hear expressed by top executives. This is the view that “governance” reduces to a set of administrative hurdles that are set up to impede efficient management. A variation of this view is expressed by the CEO who says that the appropriate role of the board is “to hire the CEO, and then to stay out of my way.” Without commenting on the merits of this perspective, it both captures the way that some executives feel about governance, and also the reality that formal corporate controls and oversight are frequently set up to serve ends other than maximizing efficiency or corporate productivity.

All of which takes us back to the new year, and to New Year’s resolutions. Governance within a corporation most fundamentally is about the asking of critical questions, and periodically looking into a mirror, in order to make sure that what you’re doing still makes sense, and that where you’re going is where you really want to go. The act of asking and seeking answers helps to refine the organization and its course, and drives outward into operations, downward into organizational structure, as well as forward into mission and strategy. To engage in organizational self-assessment is to engage in an act of good governance, regardless of the fact that different people think about this exercise in widely varied ways. For corporations as well as people, the fact that the new year prompts us to look in the mirror is surely a good thing.

Michael Greenberg is a member of the Society’s Reputation Leadership Council and holds the Governance Portfolio. The views expressed here are solely those of the author.

Reputation concern spurs fraud reporting

C. HUYGENS - Friday, April 06, 2012
CFO magazine (Johnson, 29 March) reports that fraud tips have hit an all-time high as employees are increasingly coming forward with suspicions. According to a new study by The Network Inc. and BDO Consulting, employees may be spurred to use hotlines when they see other businesses’ reputations harmed by fraud — a more frequent occurrence with regulators increasing their enforcement activity under such laws as the Foreign Corrupt Practices Act.

IAFS Membership Drive

Nir Kossovsky - Wednesday, February 24, 2010
The IAFS launched its 2010 membership drive this past week. This is why. On February 28, new US SEC regulations will drive into the boardrooms risk, reputation and intangible asset management. 

You have a decision. Will you be at the table or on the menu?

These regs mean that every board member, in fact every top executive, can expect major new challenges. Members of the Intangible Asset Finance Society (IAFS) will be prepared. Here’s how:

1. Thought Leadership. The IAFS is the only interdisciplinary Society of professionals committed to the financial exploitation of intangible assets. That translates into enhanced pricing power; lower operating and credit costs; and higher net incomes and earnings multiples.

2. Risk Management. A lost reputation can destroy a firm overnight. IAFS can keep you up to date with risk management strategies for ethics, innovation, quality, safety, environmental sustainability, and security.

3. Preferential Pricing. Society members receive preferential rates for IAFS products at our new store and discounted registration to various professional meetings. Discounted registrations for the March ICAP Ocean Tomo meeting in San Francisco and the June IP Business Congress in Munich, for example, are now offered.

4. Incentive Premium. Sign on for your academic or corporate membership including payment by March 15 and receive a complementary copy of the IAFS’s latest book, Mission: Intangible. Managing risk and reputation to create enterprise value (a $29.95 value).

Click here to learn how our strengths in Thought Leaders and Risk Management, financial benefits such preferential pricing, and premiums such as the book shown at right make joining the Society today an offer you can't refuse.

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