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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Sue-on-pay

C. HUYGENS - Saturday, July 02, 2011
In the current issue of IAM magazine (Vol 48, Jul/Aug 2011), Steel City Re's Nir Kossovsky observes that a strong reputation creates freedom to operate. No where is this more important to many managers than in the area of executive compensation. As IAM summarizes, although it is intangible, reputation allows businesses and executives operational freedoms that lead to very tangible results.

Now we have this from the National Association of Corporate Directors newsletter, the NACD Director's Daily (1 July 2011):

"Companies may not have to abide by shareholder advisory say-on-pay votes mandated under the Dodd-Frank Act," the Wall Street Journal (June 30, Chasan) notes, "but lawyers specialized in securities class action suits have already brought a half dozen suits against directors and executives for ignoring their results." A number of firms have tried to settle the claims quickly. Among the companies that have settled include KeyCorp and Occidental Petroleum. Others facing suits are Beazer Homes, Hercules Offshore, and Umpqua Holdings. Law firms also have investigations pending at Dex One, Masco Corp, and Stanley Black & Decker, among others. "In addition to legal fees," the Journal states, "the suits could impact companies more widely in areas like the cost of director and officers liability insurance, and how much compensation consultants charge."

Huygens suggested previously (1 July 2010) that low reputational rankings might have explained the say-on-pay verdicts at KeyCorp. Taking now all into account, perhaps executives will find the arguments to enhance corporate reputation that much more compelling?

KeyCorp: Say nay on pay

Nir Kossovsky - Thursday, July 01, 2010
In its annual meeting held on May 21, 2010, a majority of shareholders considered the executive compensation plan at KeyCorp (NYSE:KEY) and channeled Nancy Reagan. They just said no.

KeyCorp, headquartered in Cleveland, Ohio, is one of the nation's largest bank-based financial services companies, with consolidated total assets of approximately $95 billion. KeyCorp is the third U.S. company after Motorola Inc. (NYSE:MOT) and Occidental Petroleum Corporation (NYSE:OXY) that failed to get a majority support during a management-sponsored "say on pay" vote.

In the last fiscal year, KeyCorp's CEO Henry Meyer III saw a boost of 40.8% in his annual compensation to $8.7 million. For the corresponding period, the company reported a net loss of $1.335 billion. The raise in pay package came from an increase in the value of stock option grants and a large salary stock increase.

The company’s reputation has been in the doldrums. KeyCorp is a constituent of the S&P500 Composite Index. Compared to 283 other companies that are constituents of the S&P500 Composite Index – and have market capitalizations between $7 and 67 billion – the company’s Steel City Re Corporate Reputation Index ranking touches bottom.

Not surprisingly, there is no measurable intangible asset value in the company. As shown in the graph below, while the average S&P500 company’s value is about 82% intangible, KeyCorp has very little of that stuff. 

Many, such as Weber Shandwick’s Chief Reputation Strategist, Dr. Leslie Gaines Ross, have opined that the CEO is the focal point for corporate reputation. If this is the case, Mr. Meyer has some catch up work to do, quickly, for the pressure is building. On Tuesday 8 June, an investigation was announced on behalf of the long-term investors of KeyCorp alleging possible violations in fiduciary duty related to the past and future compensation of senior officers of the company.

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