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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Activist Investors Have a New Bloodlust: CEOs

C. HUYGENS - Wednesday, May 17, 2017
Emotionally charged disappointed activist investors existential threat to CEOs as #reputation #risk roars through the boardroom and into the corner office. Culpability insurance is in limited supply and demand is growing.

Activist investors, a perennial nuisance for chief executives, are becoming an existential threat. Since January, they have helped push out the leaders of three high-profile S&P 500 companies: insurance giant American International Group Inc., railroad CSX Corp. and aerospace-parts maker Arconic Inc. They are gunning for the CEOs at other companies including Buffalo Wild Wings Inc. and Avon Products Inc.

Read more in the Wall Street Journal.

General Mills: Briefly overrun by ronin

C. HUYGENS - Tuesday, April 22, 2014
As modern day knights, lawyers are expected to to fight and so serve their liege Lord according to the Code of Law. But they are also expected to exercise discretion. A reputation for a willingness to strike at any foe, real or perceived, will likely leave the liege Lord isolated, and in due course, destitute. Even if the liege Lord is a $32B manufacturer and marketer of branded consumer foods named General Mills.

And so it came to pass that only four days after posting on its website terms, that according to the New York Times, required "consumers downloading coupons, “joining its online communities,” participating in sweepstakes and other promotions, and interacting with General Mills in a variety of other ways to agree to arbitration in lieu of suing the company in the event of a dispute," the company reversed itself.

It was an own goal scored by a narrowly focused group in the legal department that failed to read the memo about corporate reputation protection - the one about not unpleasantly surprising customers and other stakeholders. "Those terms – and our intentions – were widely misread, causing concern among consumers. So we’ve listened – and we’re changing them back to what they were before," General Mills explained.

The reputationally-blind act, and the rapid retreat, were reminiscent of a similar cycle by AIG's legal department in January 2013. After being bailed out by the US Government to the tune of tens of billions, and running a major advertising campaign thanking the American people, AIG announced that it was considering joining a suit by former CEO Hank Greenberg against the US Government.

According to the Wall Street Journal,  Superintendent Benjamin Lawsky at the New York Department of Financial Services, a key regulator of AIG's insurance businesses,  advised AIG CEO Robert Benmosche not join the suit, because he believed it would cause reputational harm to AIG that could affect the business and preclude it from getting federal aid again. The board expeditiously snuffed the suit.

Offended stakeholders may take a diversity of actions that can have significant adverse economic consequences. In the case of General Mills, customers opting not to engage the brand would be a material harm. "On behalf of our company and our brands, we would also like to apologize. We’re sorry we even started down this path. And we do hope you’ll accept our apology. We also hope that you’ll continue to download product coupons, talk to us on social media, or look for recipes on our websites."

General Mills could have done without the self-inflicted embarrassment. More important, the incident suggests that General Mills may not appreciate that reputation is an enterprise-wide asset, that reputation risk is created by failures in governance, controls and enterprise risk management (including internal controls), and that critically, reputation management has very little to do with brand.  In the company's most recent 10K from 2013, the only reputational risk cited in item 1A deals with food safety: "A significant product recall or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence." General Mills is learning the hard way that there are many paths to reputation damage.

The reputation metrics from Steel City Re, as interpreted by Consensiv, do not show any sudden major adverse reactions to the major error in judgement. Rather, they indicate a gradual progressive deterioration in General Mills' historically high reputation premium relative to the other 29 companies in its industry sector. Over the trailing twelve months, it has slipped from the top-ranked position to the 86th percentile. Similarly, the consensus trend, which is an indicator of stakeholder uncertainty, shows no major recent increase. Collectively, theses data suggest no short-term reaction to the legal silliness.

The fact that legal could come up with such a bad idea and deploy it, however is a worrisome indicator of culture. In this regard, the reputational health of General Mills, both by action and by metrics, is no longer in the top quartile.

AIG: Reputationally motivated

C. HUYGENS - Saturday, February 18, 2012
On 11 October 2011, AIG rolled out reputation restoration insurance. "ReputationGuard", being sold through its Chartis property-casualty group, pays out when a policyholder faces a public relations crisis and needs to hire either of two big-time PR firms, Burson-Marsteller or Porter Novelli. Think of it as a gift card to buy ambulance services when you find yourself at the bottom of a cliff. The product, and the firm, were instantly derided.

Wrote The Consumerist, “Someone at AIG must have a sense of humor. The bailed-out insurance behemoth — and, more importantly, one-time Worst Company In America champ — has announced it will now offer insurance policies that help defray the costs for damage control after a company does something that puts in the ranks of widely reviled businesses like AIG.” At the Ritholtz blog, the story made the daily “WTF Video.” The New York Times’ Dealbook was more charitable: “A.I.G. knows a little bit about crisis communications, of course. After its initial $65 billion bailout by the government, the insurer became a target of widespread scorn, its very name a shorthand for the excesses that led to the financial crisis.”

Fast forward four months, factor in empirical data, and you might come to the reasonable conclusion that AIG really does know a thing or two about reputation restoration. The Steel City Re reputation risk metrics show a company whose reputation – a leading indicators of economic activity -- is well ahead of its equity performance. If Huygens gave financial advice, this would be a buy.

As of 9 Feb and from a pool of 7448 companies of which 174 comprise members of the Insurance industry, AIG ranked just below the median at the 44.5th percentile relative to its peers. Given that one year ago, its rank was nearly at the bottom at 1.2%, it is not surprising that over the past year, as well as past three months, its reputation metrics have been far more volatile than the industry as a whole. However, its return on equity is only in the 12th percentile relative to its peers. As they say, “It’s reputation all the way up.”

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