MISSION INTANGIBLE

M:I Products

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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Paying Down the Costs of a Reputation Crisis

C. HUYGENS - Tuesday, May 09, 2017
More going-forward costs of #reputation #risk -- now burning furniture.

San Francisco-based bank Wells Fargo & Co. is considering selling its insurance brokerage unit for about $2 billion, Bloomberg reported Tuesday.

Citing “people familiar with the matter,” Bloomberg said Wells Fargo is contacting private equity firms to determine the interest in Wells Fargo Insurance Services USA Inc. The bank is planning to move forward with a sale, Bloomberg reported, but it hasn’t set a timeline for holding a formal auction, one of the people said.


Read more in the Business Insurance.

Paying the Ongoing Costs of a Reputation Crisis

C. HUYGENS - Monday, May 08, 2017
#Reputation #Risk “Corporate names are resilient: when their images get damaged, a change of management or strategy will often revive their fortunes. But personal reputations are fragile: mess with them and it can be fatal,” wrote John Gapper for the Financial Times in August, 2016.

Wells Fargo is preparing to unveil new cost-cutting measures as the scandal-hit US bank tries to rebuild Wall Street’s confidence after a bruising annual meeting with shareholders.

Tim Sloan, chief executive, is this week expected to reveal plans for annual savings at Wells, the world’s third-biggest bank by market capitalisation, of as much as $3bn — on top of an existing $2bn expense-reduction plan.


Read more in the Financial Times.

Wells Fargo: Legal Bills Pile Up

C. HUYGENS - Friday, May 05, 2017
#Reputation #risk Entry level losses based on 6000 events average 24% market cap, 13% sales, and 12% net income. Values vary by industry sector, year, and underlying causes.

Wells Fargo has warned its litigation bill could be $200m higher than previously thought as the US bank sheds new light on a series of lawsuits it is facing over the bogus account scandal.

In a quarterly filing on Friday, Wells said “reasonably possible” losses from legal actions against it could exceed its existing provisions by $2bn — up from a $1.8bn figure it disclosed three months ago.

The document shows how lawsuits are piling up against Wells after thousands of its employees, under pressure to hit sales targets, turned to fraud. Workers signed up as many as 2.1m customers for cards and accounts over several years without their authorisation or consent, in some cases faking signatures.


Read more in the Financial Times.

Accounting Scandals Put the Big Four on the Spot

C. HUYGENS - Thursday, May 04, 2017
"...there is a wide gap between auditors’ own idea of how far their responsibilities stretch and the expectations of investors and the general public."

From the shambles of the Oscars ceremony to the more serious matters of US lawsuits and UK regulatory investigations, it has been a difficult year for PwC. Its rival KPMG is hardly faring better. The Big Four accountancy firm was castigated by Senator Elizabeth Warren for failing to spot dubious practice at the lender Wells Fargo. Now its auditing of Rolls-Royce is under investigation in the UK after the engineering company admitted bribery and corruption offences going back 20 years.

These scandals are not on the grand scale of the Enron fraud, which led to Arthur Andersen’s demise. Yet they highlight the failure of the accountancy profession and its regulators to resolve, in the intervening 15 years, the fundamental question of how far auditors should be expected to go in their efforts to uncover bad behaviour.


Read more in the Financial Times.

VW's Reputation Hinges on Quality of Governance

C. HUYGENS - Monday, September 28, 2015
The event the BBC’s Russel Hotten reports as being dubbed the “diesel dupe” is not a recent discovery. Notwithstanding the extraordinary attention it’s been receiving these past two weeks, as with most operational issues that blossom into full blown reputational value crises, there were risk signatures going back 15 months that something was amiss.

In 2014, the West Virginia University Center for Alternative Fuels, Engines and Emissions was contracted by by nonprofit pollution control advocate International Council on Clean Transportation to measure emissions on three cars: a 2012 VW Jetta, a 2013 VW Passat and a BMW X5 SUV.

As reported by FOX, the “BMW passed, but the university found significantly higher emissions from the Volkswagens, according to the U.S. Environmental Protection Agency. The university and the council reported their findings to the EPA and the California Air Resources Board in May 2014, but VW blamed the problem on technical issues and unexpected conditions.”

As we now understand, VW installed software that was supposed to adjust engine output to meet environmental standards when it detected the presence of an external monitoring device typically found in garage and in-door environments. The software did not recognize the monitoring tool used by the WVU lab which is designed to be used in road tests. The engine output was at variance with expected values.

Leading the project for the International Council on Clean Transportation that exposed the shenanigans at VW is an engineer with the improbable name of John German. As reported in the Guardian, German said of his research, “We really didn’t expect to find anything.”

Here’s how the BBC summarizes VW’s position.

The case against VW appears cast-iron. "We've totally screwed up," said VW America boss Michael Horn, while group chief executive Martin Winterkorn said his company had "broken the trust of our customers and the public". An internal inquiry has been launched.

With VW recalling almost 500,000 cars in the US alone, it has set aside €6.5bn (£4.7bn) to cover costs. But that's unlikely to be the end of the financial impact. The EPA has the power to fine a company up to $37,500 for each vehicle that breaches standards - a maximum fine of about $18bn.

Legal action from consumers and shareholders may follow, and there is speculation that the US Justice Department will launch a criminal probe.


Turning to the Reputational Value Metrics as reported by Consensiv based on data from Steel City Re, the indicators of reputational value, volatility, and loss indicate VW is NOT topping the charts in measures of reputational value impairment among the full range of stakeholders. Equity investors, of course, are the first to panic: they've shaved about 30% off the company’s market cap.

But is this a reputational crisis? No, or at least, not yet.  Right now, the indicators of reputational value suggest the Company is benefiting from its historic reputation of automotive engineering excellence reinforced by decisive crisis management action (not merely communications). That legacy of operational excellence, which has been understood and appreciated by myriad stakeholders for years, is providing reputational value resilience.

As for the future, as well appreciated by readers of Reputation, Stock Price and You, and as headlined in the Philadelphia Inquirer, the “financial, reputation hits to Volkswagen hinge on top execs' culpability.”

Mostly Whole Foods

C. HUYGENS - Wednesday, July 08, 2015
The irony is lost on few. Whole Foods, derided for its high pricing with the moniker, Whole Paycheck, is challenged with providing all the product. According to New York City’s consumer chief, Whole Foods has been found guilty of overcharging prepackaged meat, dairy and baked goods with inconsistent weights.

People Magazine's friendly summary of the  practice: "Although Whole Foods has not been fined because of the ongoing investigation, the upscale store has thousands of potential violations, says the department. To put that into perspective, the fine for falsely labeling a package can be as high as $950 for the first violation with subsequent violations requiring a company to pay up to $1,700 in penalties."

IJ Review's less polite commentary. "The NY Daily News reported that investigators found 80 different items that were labeled incorrectly. DCA Commissioner Julie Menin said 'it was the worst case of overcharges that they’ve ever seen.'”

Just last year, a California-based Whole Foods was subjected to pay a penalty of $800,000 due to similar pricing irregularities.

The irony runs deeper. CEO John Mackey is one of the leading voices for a movement called "Conscious Capitalism," wherein corporations focus on purpose instead of profit.

Described in December/January 2010 issue of Fast Company magazine, "Conscious Capitalism underscores the importance of all of a company's interdependent "stakeholders": employees, customers, shareholders, suppliers, community, and the environment. When all of those constituencies' interests are factored into the company's decisions and aligned, his (Mackey's) thinking goes, all — including, not incidentally, the bottom line — will flourish."

It is only fair to turn to the reputation value metrics as see what insight can be gained on the current expectations of those interdependent stakeholders.

Reputational value has been slipping exposing a reputation dependency in the company's market cap of around $1.4 billion or 10% of the firm's value. The Value Risk is high in the 73rd percentile among 48 peers. This indicates that the interdependent stakeholders are confused--a reasonable state of cognitive dissonance given historic expectations and current reality.

Algorithmically, all this uncertainty produces an overall reputational health metric of 54% of its maximum, meaning, investors are also apparently being short-changed.

NFL: Reputation sacked again

C. HUYGENS - Tuesday, September 23, 2014
In the entertainment business Disney knows so well, managing reputation is a business imperative. The NFL has been sacked three times in as many years for reputation losses. Blame the Internet, if you will.

Warnings dating back to 2009 predicted that “hyper-transparency” enabled by the Internet would change the boundaries used to assess a company’s scope of control, and its degree of accountability and responsibility. Since then, stakeholder pass rushes have sacked the NFL thrice: for poor quality and greed, poor safety and greed, and now poor ethics and...greed?

Read more.

Ethics: Report slams US tobacco child labour

C. HUYGENS - Wednesday, May 14, 2014
Companies producing tobacco products have come to terms with society; in exchange for contributing to the tax bases of the reigning authority and relative transparency into the health effects of their products, they are accepted as commercial members in good standing. Alas, beyond safety, there are five other key issues that matter. One of them is ethics - child labor to be exact.

According to the Financial Times, a Human Rights Watch report on the US and the world’s biggest tobacco companies discloses young children are working 12 hour shifts in dangerous conditions. "The report highlights an area of reputational risk for an industry that is already spending billions of dollars a year complying with a patchwork of national and international regulations."

For companies now investing $millions into compliance solutions, the Human Rights Watch compliance standard should be disconcerting. Mere documentation of compliance standards is not good enough. Fostering conformance with compliance standards is, well, the new standard. “The burden falls on [the companies] to say that this isn’t happening on their farms.”

The report is not pure opprobrium, and credit is given for good effort. According to the Financial Times, "Human Rights Watch cited Philip Morris International, which sells Marlboro, L & M and Parliament outside the US, with creating 'the most detailed and protective set of policies and procedures' on child labour."

The credit given by HRW appears to mirror credit given by Philip Morris' other stakeholders. As shown in the reputation metrics below, the firm's Reputation Premium relative to its peers is top of the heap with the firm ranking #1 out of 13 companies in the Tobacco peer group. Not that PM should be complacent. The relatively high Consensus Trend indicates not all stakeholders are sure they know the company or agree on its reputation value. Some, perhaps not being used to compliments from HRW, may fear the news is too good to be true.

Read more

Novartis: Doctoring data

C. HUYGENS - Friday, April 11, 2014
For a company, a reputational crisis is the threat that stakeholders will fundamentally change their expectations. A crisis is often precipitated by the disclosure of what amounts to failures in controls in the areas of ethics, innovation, quality, safety, sustainability, and security. In this sense, as exemplified currently by Novartis in Japan, adverse media and the public relations noise that follows provide a window into the operational failure in ethical controls and falsified clinical trial records.

Read more.

CVS Caremark: Thank you for not smoking

C. HUYGENS - Friday, March 28, 2014
A few weeks back, CVS Caremark (CVS) caused quite a stir with this ethical shocker: the health retail chain was going to forgo $2 billion by no longer selling a family of anti-health products based on tobacco. The equity markets initially punished the firm; the reputation metrics according to Consensiv and based on Steel City Re's reputational value metrics, showed other stakeholders were bullish.  The Reputation Premium already at the top, stayed at the top. The Consensus Trend, CT, rose, along with that of the entire sector, so that CVS's relative positioning was unchanged. A shocker for the sector of all six drug store chains, indeed.

The equity markets have since figured it out. CVS has climbed 12.5% since 5 February while the S&P500 is up less than half that. CVS hit an all-time high on March 26th. The #2 sized firm, Walgreens, (WAG) is up almost 17%, down from its peak post-CVS announcement of 23%.

Experience shows that 20 weeks is a good window for recording major reputational changes after a shock. Usually, the shock is negative; here the shock is clearly positive. We'll be back.



For more background on the Consensiv reputation controls, click here. To view the December 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here. Last, to read more about how reputational value is linked to stakeholder expectations and enterprise value, read, Reputation Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012) (click here).

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