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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Personal Reputation Risk Worth 32% Premium

C. HUYGENS - Friday, July 17, 2015
Personal risk to corporate directors is assumed to be covered by D&O liability insurance. Except that personal reputation isn't covered by D&O at all. Which is why Kathy Grant's story is so interesting.

Ms. Grant heads a cash-strapped Health Board in New Zealand. As its Commissioner, she is facing the need to make "extreme cuts" in benefits that will not be popular among the constituency. How extreme you may ask? So much so, explained a government spokesperson, that Ms. Grant's personal reputation is at risk.

Risk is not an impediment to progress if priced correctly. That's the logic, after all, in hazard duty pay. To bear personal reputation risk, the Health Board is paying Ms Grant a healthy 31.8% premium over the maximum customary rate of $1062 per day.

Read more.

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.

Practical Reputation Risk Management

C. HUYGENS - Thursday, February 12, 2015
In almost every type of business, pressure is on line functions to cut costs, on management to sustain operations at a profit, and on governance to ensure compliance and protect reputation. At times, over-zealousness at the line or management level places governance at risk.

CFO.com today describes one practical tool to protect Directors and Officers. Read more.

Reputation Risk: Oh, baby tell it to me once again

C. HUYGENS - Thursday, October 30, 2014
Channeling songwriter Toni Tenille’s 1980’s classic, Deloitte is telling executives one more time that 88% of their peer group now explicitly focus on reputation risk as a key business challenge. The most recent global survey by the accountancy, reported 28 October, affirms yet again that reputation risk is a C-suite issue and that the most important stakeholders are customers, regulators, other senior executives, employees and remarkably last, investors.

Read more.

Say those words again that you just did
Oh, baby tell it to me once again


Sing more.

Scotland's Reputation: Just watch what they do.

C. HUYGENS - Wednesday, September 24, 2014
Andrew Carnegie, one of Scotland's better known American transplants, famously said, "As I grow older, I pay less attention to what men say, I just watch what they do." So while the opinion polls suggested a close plebiscite, the Scots' vote favored the union by 10%. Scotland's reputation as one of four upstanding united kingdoms was preserved.

Not necessarily so. As Consensiv's Jonathan Salem Baskin points out, the electorate has voted. Now watch what other stakeholders do -- evidenced by the value of foreign direct investment, tax impact of immigration, business start up and expansion rates, risk premium on sovereign debt; and by what concessions the local Scottish government needs to make to optimize the above.

Read more.

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.

Double Secret Probation Warning to the Fed

C. HUYGENS - Wednesday, June 18, 2014
Signaling financial markets with extra-financial information creates value because it helps balance the asymmetry in information between insiders and outside investors. When the signal conveys lower risk, the result is an expectation of increased value. Consider this quote from the Financial Times for June 16, 2014 discussing how signaling can help reduce risk.

Note that the problem appears to be a belief in certainty by the markets and a belief in uncertainty by the IMF chief, and a request for the Fed chairwoman to increase the level of uncertainty in the markets through more frequent communications.

Ms. Lagarde…, the IMF chief(,) said the path for Fed policy remains highly uncertain, “while at the same time there seems to be a large amount of certainty in markets about where policy rates are going to go”…this “‘sets up the risk, even with a successful and well-communicated increase in interest rates, for significant swings in market flows and prices in the months ahead. If such volatility were to unfold, it would have implications that would reach far beyond US borders.” Ms Lagarde called for Fed chairwoman Janet Yellen to hold more frequent press conferences, up from the current four a year, to reduce the chances of a miscommunication.

Emerging Trends in Reputation Risk Management

C. HUYGENS - Tuesday, June 03, 2014
A growing number of corporate pioneers are starting to treat the management of reputation risk as a separate function with formal reporting to the board, and some companies have restructured their leadership team and reporting systems: five of the FTSE 100 have introduced steering groups to focus on reputation risk.

Read more.

General Mills: Briefly overrun by ronin

C. HUYGENS - Tuesday, April 22, 2014
As modern day knights, lawyers are expected to to fight and so serve their liege Lord according to the Code of Law. But they are also expected to exercise discretion. A reputation for a willingness to strike at any foe, real or perceived, will likely leave the liege Lord isolated, and in due course, destitute. Even if the liege Lord is a $32B manufacturer and marketer of branded consumer foods named General Mills.

And so it came to pass that only four days after posting on its website terms, that according to the New York Times, required "consumers downloading coupons, “joining its online communities,” participating in sweepstakes and other promotions, and interacting with General Mills in a variety of other ways to agree to arbitration in lieu of suing the company in the event of a dispute," the company reversed itself.

It was an own goal scored by a narrowly focused group in the legal department that failed to read the memo about corporate reputation protection - the one about not unpleasantly surprising customers and other stakeholders. "Those terms – and our intentions – were widely misread, causing concern among consumers. So we’ve listened – and we’re changing them back to what they were before," General Mills explained.

The reputationally-blind act, and the rapid retreat, were reminiscent of a similar cycle by AIG's legal department in January 2013. After being bailed out by the US Government to the tune of tens of billions, and running a major advertising campaign thanking the American people, AIG announced that it was considering joining a suit by former CEO Hank Greenberg against the US Government.

According to the Wall Street Journal,  Superintendent Benjamin Lawsky at the New York Department of Financial Services, a key regulator of AIG's insurance businesses,  advised AIG CEO Robert Benmosche not join the suit, because he believed it would cause reputational harm to AIG that could affect the business and preclude it from getting federal aid again. The board expeditiously snuffed the suit.

Offended stakeholders may take a diversity of actions that can have significant adverse economic consequences. In the case of General Mills, customers opting not to engage the brand would be a material harm. "On behalf of our company and our brands, we would also like to apologize. We’re sorry we even started down this path. And we do hope you’ll accept our apology. We also hope that you’ll continue to download product coupons, talk to us on social media, or look for recipes on our websites."

General Mills could have done without the self-inflicted embarrassment. More important, the incident suggests that General Mills may not appreciate that reputation is an enterprise-wide asset, that reputation risk is created by failures in governance, controls and enterprise risk management (including internal controls), and that critically, reputation management has very little to do with brand.  In the company's most recent 10K from 2013, the only reputational risk cited in item 1A deals with food safety: "A significant product recall or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence." General Mills is learning the hard way that there are many paths to reputation damage.

The reputation metrics from Steel City Re, as interpreted by Consensiv, do not show any sudden major adverse reactions to the major error in judgement. Rather, they indicate a gradual progressive deterioration in General Mills' historically high reputation premium relative to the other 29 companies in its industry sector. Over the trailing twelve months, it has slipped from the top-ranked position to the 86th percentile. Similarly, the consensus trend, which is an indicator of stakeholder uncertainty, shows no major recent increase. Collectively, theses data suggest no short-term reaction to the legal silliness.

The fact that legal could come up with such a bad idea and deploy it, however is a worrisome indicator of culture. In this regard, the reputational health of General Mills, both by action and by metrics, is no longer in the top quartile.

Reputation Risk: Scoring an own goal

C. HUYGENS - Monday, April 21, 2014
A reputation crisis often follows a failure in an operational process when stakeholders hold the board culpable for a concomitant failure in governance, controls and risk management. There are specific strategies companies can follow, and products companies can acquire, that can protect Directors and Officers from undeserved opprobrium.

However, from time to time, the failure starts at the board level without any operational antecedent. There is little a company or an institution can do to deflect the well-deserved opprobrium other than listen to stakeholders, assess the importance of their support, and to find someone to fall on a sword. In the recent past, Susan Komen's Race for the Cure and Chick Fil-A had their self inflicted wounds spotlighted after positions were taken in the culture wars.

Months after the Susan G. Komen Foundation for the Cure made national headlines for halting then reinstating funding to Planned Parenthood, the organization's two top executives, its founder and president, stepped down. With Chick Fil-A, CEO Dan Cathy shared his experience after making public homophobic remarks with the Huffington Post, "“Every leader goes through different phases of maturity, growth and development and it helps by (recognizing) the mistakes that you make,” Cathy told the AJC. “And you learn from those mistakes. If not, you’re just a fool. I’m thankful that I lived through it and I learned a lot from it."

More recently, it was (re)revealed that now-former Mozilla CEO Brendan Eich had six years ago donated $1,000 to a group opposing same-sex marriage. Within two weeks of the public outcry, the board "allowed" the co-founder of the Mozilla project, which developed the Firefox browser, to step down. Of course, had the board done its homework, it would have found that the controversial donation was first hotly debated two years ago. Only then, Eich was not the CEO.

Meanwhile, at the centers of higher learning, the lessons are not sticking any better. Penn State University, whose former President, Graham Spanier is charged with covering up a child molestation scandal to protect the school's football program, has recently hired a new President who's prior school is being rocked by allegations of downplaying a rape scandal to protect the school's football program. According to Bloomberg,  "the New York Times has a front-page investigative story (and accompanying interactive) accusing both the school and local police of mishandling a Florida State University student’s report that she was raped by Jameis Winston, FSU’s star quarterback and winner of the 2013 Heisman Trophy." Penn State spokeswoman Lisa Powers wrote to Bloomberg that “Penn State Trustees conducted all appropriate, thorough background checks and investigations required by institutional policy.”

Reputation risk is the threat that stakeholders will discover that a company, foundation, or university is unable to meet their expectations, and as a result, change their expectations with resulting adverse economic consequences. There are strategies to align expectations and control operations. The first strategy is not to score an own goal.

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