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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Looming Reputation Risk Explosion

C. HUYGENS - Wednesday, December 20, 2017
The recent stock market rise has masked weaknesses that could lead to massive losses linked to corporate reputational crises in the coming year, according to research conducted by Steel City Re, which analyzes reputational risk and provides insurance to protect companies and their leadership.

A number of companies have undergone reputational crises in the past year and, as a result, have significantly underperformed compared to their industry peers. Despite this, they still have seen their market caps rise – temporarily quelling stakeholder anger and reducing the severity of losses one might otherwise expect. When the equities markets go through an inevitable correction, those companies will likely sustain the biggest losses and, once again, become the focus stakeholder hostility – leading to a potential avalanche of reputational attacks and related financial losses.

This study comes a year after Steel City Re research showed a 461% increase in corporate reputation-related losses during the five years leading up to and ending in 2016. Key findings of the new study, which can be found here, include:

  • Factors leading to reputation related losses have become more extreme, including the weaponization of social media.
  • A rising stock market has created a false sense of security among certain companies and their stakeholders.
  • Prominent activist investors, often the catalyst for stakeholder anger, have been less effective, but smaller activists with less capital have emerged, targeting smaller companies.
Looking to 2018, a market correction will expose companies with reputational issues, compelling activists to attack and stakeholders, the media and political figures to unleash pent-up anger at corporate executives and board members. As a result, companies will experience losses in market cap, revenue, earnings and margins that could as much as double those experienced in the past year.

Dr. Nir Kossovsky, CEO of Steel City Re, said: “Warren Buffet’s saying that you can only tell who’s been swimming naked when the tide goes out is an apt description of the current environment. After witnessing the reputational bloodbath of 2016, quality companies committed to emerging unscathed in 2018 must communicate the improved quality of their governance and build reputational defenses that will insulate them when the inevitable onslaught occurs.”

The risk of reputation value loss was determined through a multi-year loss simulation experience based on a standard insurance parametric model of reputational value metrics. The actuarial database comprises approximately 5.65 million measures derived from a median of 7,313 public companies weekly for 823 continuous weeks.

Xerox: Sharks are Back!

C. HUYGENS - Wednesday, December 13, 2017
Xerox -- no repellent, sharks return! 20% of US companies targeted in 2017 previously targeted in past 4 years. Qualifying and being underwritten for Reputation Assurance, often called a "warranty on governance," can help ward off attacks.

The US printer and photocopier company bowed to pressure from Icahn nearly two years ago to split itself into two, a hardware and services business.

Read more in Financial Times.

Read more on activist investors and reputation risk.

Involved Boards Must Protect Themselves, Too

C. HUYGENS - Sunday, November 19, 2017
Augmenting Christopher P. Skroupa’s comments in Forbes, “governance warranties,” evidencing oversight, is a priceless strategy to help boards fight reputation risk.

“It’s the board’s job, not management’s job, to say if they are willing to take a certain amount of monetary or reputational risk in any given area. It’s management’s job to figure out how to do the business and set the strategy.“

Read more in Forbes.

Read more on Boards and Reputation Risk

Cost Muliplier Effects of a Bad Reputation

C. HUYGENS - Tuesday, November 14, 2017
In sports, as in business, a reputation shades everything.
"Given Burfict's history and #reputation, he may serve additional punishment for the incident on Sunday." #risk.

Read more in Business Insider.

Read more on Reputation Impairment.

Reputation Loss Can Feel Like A Death

C. HUYGENS - Thursday, November 09, 2017
Reputation is a vital aspect of our public selves. “Reputation is an instrument of moral justice, sharpened by mass communication — a dangerously double-edged one, open to misuse and misappropriation…”

Read more in Financial Times.

Read more on Reputation

Unaddressed Enterprise Risks Leave Boards Exposed

C. HUYGENS - Tuesday, November 07, 2017
Only 61% of respondents use enterprise risk management to inform strategy, says the Risk and Insurance Management Society.

“Responses from 397 respondents from more than 14 different industries were collected online from March 6 to May 6, 2017, according to RIMS….87% agree that executive management expects the ERM program to identify, prioritize, manage and monitor major risks.”

Read more in Business Insurance.

Read more on Enterprise Risk Management

Wells Fargo: Another Damning Report

C. HUYGENS - Sunday, October 22, 2017
The latest blow to the reputation of Wells Fargo, #reputation #risk. OCC issues report on the bank's improper auto insurance practices...problem surfaced in July, after The New York Times obtained an internal report prepared for the bank’s executives.

“The comptroller’s findings …could force the bank to curb, or at least more closely monitor, its practices across the entire company. ”

Read more in New York Times.

Read more on current poster child for reputation risk, Wells Fargo

CEO Cult of Personality Exposes Boards to Reputation Risk

C. HUYGENS - Saturday, October 21, 2017
Cult of personality exposes boards to #reputation #risk

“Any business built on a strong personality [that's] unrestrained can lead to good and it can lead to risk. The point of good governance is to allow the good part of a strong personality to create value while restraining the bad part of a strong personality from creating risk. ”

Read more in Benzinga.

Read more on reputation and Boards of Directors.

Investors (Finally) Discover Costs of United’s Impaired Reputation

C. HUYGENS - Thursday, October 19, 2017
Weak demand in Asia..depressing results; violent (Asian) passenger removal (naively) had little impact on share price—at the time.

“Chicago-based airline forecast…that unit revenues would fall by 1 to 3 per cent…[while competitor Delta] expects the unit revenue measure to rise by 2 to 4 per cent in the fourth quarter. ”

Read more in Financial Times.

More on reputation and United Airlines

Reputation Value Collapses as Trust Falls to Zero at Kobe Steel

C. HUYGENS - Thursday, October 12, 2017
#Reputation #risk at Kobe Steel over quality. In 48 hours, 40% equity fall; 500% credit default swap rise.

“…according to Atsushi Yamaguchi, an analyst with SMBC Nikko Securities…if it fails to demonstrate change in its corporate structure, Kobe Steel risks an exodus of customers and investors over the longer term’ he said.”

Read more in Financial Times.

More on reputation risk and quality.

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