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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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Reputation at AirAsia: Airworthy or hot air?

C. HUYGENS - Wednesday, January 14, 2015
When compliance fails and/or risk manifests, the business world turns to lawyers and communicators. These are the signs of a crisis. So is a stock price drop of 7%. Monday's Risk & Compliance Journal (blog) at Wall Street Journal (paywall link) began its 2015 Crisis of the Week series by asking three experts to opine on the communications effectiveness of AirAsia (OTC:AIABF) following the still mysterious crash of flight QZ8501 in late December. 

Richard Nicolazzo, managing partner of the eponymous Boston-based crisis communications company, raved over AirAsia CEO Tony Fernandes' media performance. "…we have never seen a CEO use social media so effectively in managing a crisis." Alas, being all aTwitter has its downsides when facts are either not at hand, or worst, against you. Nicolazzo calls it bad luck. "..the facts surfacing recently from the transportation ministry [that AirAsia 8501 lacked the required permits from regulators to fly that day] are emerging at exactly the wrong time."

Anthony Johndrow, chief enterprise strategy officer of Reputation.com is not at all bothered by the regulation matter. He sees CEO ownership of the crisis and the assurances that "all will come out at right time" as the deciding actions. Tweeting good words means good outcomes, assures Johndrow, "Mr. Fernandes is still putting himself out there. If he continues down that path–and does not get caught lying while doing so–AirAsia will be seen and talked about favorably across the region for years to come.”

The nay-sayer of the three is Andrea Bonime-Blanc, chief executive and founder of GEC Risk Advisory. Leave it to the lawyer/PhD to be deeply troubled by the lack of permitting and licenses, and the CEO's lack of awareness of same. In an 'emperor's new clothes' moment, she asks, "Is there a disconnect or is there synchronization between the company’s public relations and the company’s risk and compliance culture?" To her, the tweeting admired by Nicolazzo and hailed by Johndrow is another source of risk (think about the Tony of BP). "If…image and PR are mere marketing devices that do not reflect the reality within the company, crisis and reputation management will be less successful or even disastrous depending on the issue, with attendant loss of stakeholder confidence and ultimately value to the company."

To Bonime-Blanc's credit, signs of a reputation crisis were evident at the outset. On the first trading day following the crash, AirAsia shares fell 7.1%, their biggest one-day drop in more than three years according to Seeking Alpha. That's the magic number she cites in her reputation risk handbook as being a marker of a reputation crisis. There are more -- it is a handbook, not a leaflet -- but this is not a book review.

There is one other company on the hook. German insurer Allianz (OTCQX:AZSEY) is the lead re-insurer to the missing plane, and was the main re-insurer to flight MH370 that disappeared in March, as well as flight MH17 which was shot down in Ukraine. Hello Richard Nicolazzo, this trifecta is what bad luck looks like -- unless, of course, it is merely the face of suboptimal underwriting processes. Since underwriting is the core capability expected of Munich Re by its stakeholders, this string of aircraft losses creates reputation risk for Munich Re, too, as shown below.

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