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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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What Does Happiness Have to Do With Reputation?

C. HUYGENS - Thursday, August 07, 2014
OK, class. Together, please: Reputation comes from expectations, and value comes from stakeholder behaviors. Now the long form: Corporate reputation is the sum of stakeholder expectations of corporate performance, which leads stakeholders to behave in financially-relevant ways, such as how creditors set borrowing rates, suppliers set terms, customers respond to prices, how effectively employees work, and how severely regulators impose penalties. To better understand how expectations lead to behavior, it is helpful to know that according to researchers, our emotional states are tied to our expectations.

This may not come as a shocker, but "disappointment squelches happiness." Look no farther than the violent reaction to BP four years ago to understand what over promising and under delivering can look like in the extreme. But this other observation may not be as intuitive: "expectations affect happiness long before the reward." In casino parlance, people "act on the come." And what helps establish expectations? That's right. Reputation.

There's more for those in the communications field. It appears that expectations are reset moment to moment based on immediate experiences; happiness follows. This observation suggests that annual surveys of stakeholder sentiment are as useful in day to day management of reputation as are balance sheets in day to day management of cash flows. As one colleague quipped, "How do your account reconciliations fall behind by twelve months? One day at a time."  

(Updated on 8 Aug from the original posting .)

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