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.

Battles are Public and Personal Activist Investor Warns

C. HUYGENS - Sunday, October 22, 2017
Talk about personal reputation risk, ADP CEO Rodriguez recalls activist investor Bill Ackman telling him,

“I know you don’t like the media, but I do and I’m really good at it,” Mr Rodriguez said. “And if this gets into a public battle, it’s going to be bad for you personally, it’s going to be bad for the company, but I’m fine with it because — and he said this — I’m told that I’m only second to Donald Trump in terms of number of clicks on the internet, and hence you will lose if there’s a public relations battle.”

Read more in Financial Times.

Read more reputation risk and activists.

A “Pyrrhic Victory” for P&G?

C. HUYGENS - Wednesday, October 18, 2017
P&G chief executive David Taylor spent at least $35m as the company fought to prevent Nelson Peltz taking a seat on its board

“…the message from large investors is clear: Mr Peltz’s questions will not go away. ‘The bad news is that [Peltz] is right,’ says Scott Galloway, marketing professor at New York University’s Stern School of Business. ‘The good news is that P&G recognises that.’”

Read more in Financial Times.

More on reputation and Procter & Gamble

Challenge of a Different Color

C. HUYGENS - Tuesday, August 29, 2017
Products like D&O insurance protect from from legal liability but they hold no sway in the court of public opinion.

“CEOs now need to avail themselves of new tools that defend against these new types of threats – products that provide third party warranties and demonstrate good governance in a way that creates an easy to understand, and completely credible alternative narrative when bad or false news strikes. Companies and their executives need credibility to deter attacks and financial protection when attacks do occur.”

Read more in Industry Today.

Consequences of Reputation Impairment: Executive Branch Edition

C. HUYGENS - Monday, August 21, 2017
“…a photo [opportunity] with the president…increasingly meaningless; …fear of retaliation also [has] waned.”

Read more in the Financial Times.

Reputational Benefits of Exceeding Expectations

C. HUYGENS - Tuesday, August 01, 2017
Exceeding low expectations out of the box (stock dropped 1% the day he was appointed), now

"the board and investors are betting he can work...magic in resuscitating the reputation of the entire company..."

Read more in the Financial Times.

Executives Become the Personification of Stakeholder Dissatisfaction

C. HUYGENS - Wednesday, July 26, 2017
"Whenever there’s a corporate misstep, stakeholders, from activist investors to customers to politicians, are giving public voice to their anger through social media, doing damage not only to corporate brands, but to individuals in corporate leadership positions.…The executives who are vilified during a crisis become the personification of stakeholder dissatisfaction. When they are targeted, the personal losses can be devastating."

Read more in the CEO World.

Crisis Communicator Creates Reputational Crisis

C. HUYGENS - Sunday, July 09, 2017
Crisis communicator culpable for reputational crisis with false news stirring up racial tensions. It is a question of ethics.

“Much of what has been alleged about our work is, we believe, not true — but enough of it is to be of deep concern,” Mr Henderson (Bell Pottinger’s CEO) added. “These activities should never have been undertaken.”

Read more in the Financial Times.

Activist Bloodlust: CEOs and Chairmen…Who’s Next?

C. HUYGENS - Thursday, July 06, 2017
In June, 8 CEOs resigned or announced their departures. In the first five months of 2017, 13 companies with market values of more than $40 billion installed new CEOs—including American International Group Inc. In at least 1/3 of the cases, activists were involved reports the Wall Street Journal.

The bloodlust continues.

Meanwhile, at Ericson where Chairman Leif Johansson is stepping down under pressure according to the Financial Times, “activist shareholder (Cevian Capital) quickly heaped heavy criticism on Ericsson’s board given the group’s poor performance, with Christer Gardell, Cevian’s co-founder, saying they had “done a very poor job”.”

Read more in the Wall Street Journal.

Reputation Crises Experienced Personally

C. HUYGENS - Thursday, June 29, 2017
“When reputational crises hit, market cap, sales, margins and profits are all on the line…but it’s not only the corporate entity that faces challenges – individuals in leadership, particularly CEOs, face personal risk as well.”

Read more in the Property Casualty 360.

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