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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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Berkshire Hathaway: An apology

C. HUYGENS - Wednesday, May 04, 2011
In 1991, upon the near-collapse of Salomon Brothers, the investment bank, then Chairman Warren Buffet described to a Congressional committee the admonition he used to foster ethical compliance among Salomon employees. “Lose money for the firm, “ he would tell them, “and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”

Last week, as the Financial Times reports (April 26-30, McCrum), "a subdued Mr Buffett apologised to shareholders packed into the Qwest auditorium as he gave a blow-by-blow account of the resignation of David Sokol, whose purchase of Lubrizol shares ahead of its acquisition by Berkshire has prompted rare criticism of the famed investor and prompted a derivative shareholder suit alleging destruction of reputation. In parallel, Berkshire’s audit committee has tried to fix matters by accusing Mr Sokol of misconduct and a breach of his legal duties, which he denies."

The New York Times (May 2, Crane, Cyran) notes that Buffett overlooked perhaps the most significant link to Salomon. "The rogue trading there exposed poor controls," the newspaper states. "Though Buffett seemed unwilling, or unable, to dwell on his own failings when addressing Berkshire shareholders, he joked that [longtime investing partner Charles] Munger would handle future news releases" and pleaded guilty to not expressing sufficient outrage earlier regarding Sokol's actions."

The reputation metrics show an ongoing slide, an increase in volatility, and a material drop in enterprise value. The Steel City Re Corporate Reputation Index rank is holding steady at the 97th percentile, down from earlier this year. The exponentially weighted moving average reputation index volatility is increasing to 1.8%, the trailing 12-week velocity is -3% and the trailing twelve week vector is -0.6%. Both are still trending down. Among 50 peer Property/Casualty Insurance firms, the company is underperforming the median over the trailing twelve months by 2.16%. Last, the Company’s intangible asset fraction is now at parity with the median of its sector.

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