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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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RR Donnelley: Google it

C. HUYGENS - Wednesday, October 31, 2012
As the saying goes, there are only two types of companies: those that have had operational failures, and those that will. On 18 October, RR Donnelley & Sons, the printing-services firm, released the 8K quarterly earnings report for Google, the internet services company, 4 hours earlier than expected. The markets closed with the S&P500 down 0.24%, RR Donnelley down 0.88%, and Google down 8.00%.

This is how the Wall Street Journal’s MarketBeat blog reported the story, excerpted. First, Google’s take on the matter:

Earlier this morning RR Donnelley, the financial printer, informed us that they had filed our draft 8K earnings statement without authorization. We have ceased trading on Nasdaq while we work to finalize the document. Once it’s finalized we will release our earnings, resume trading on NASDAQ and hold our earnings call as normal at 1:30 PM PT.

Now, Donnelly’s take:

We are fully engaged in an investigation to determine how this event took place and are pursuing our first obligation – which is to serve our valued customer.

The value of that service is now being questioned. As reported in the New York Times blog, Dealbook:

An executive at Webfilings, a company based in Ames, Iowa, that sells an application that allows companies to self-file, used last week’s events as a marketing opportunity, reminding customers that “this unnecessary mistake reinforces the need for public companies to completely control the release of their financial data,” as Mike Sellberg wrote on the Webfilings blog.

The reputational risk for Donnelley is security--one of the six pillars of reputational value. As Chuck Malloy from Intel told Dealbook, “We own the liability and the risk, and this allows us to maintain the integrity of the reporting process. If there’s a problem, it’s our problem.”

The reputational value metrics from Steel City Re do not indicate that the operational failure has matured into a reputational crisis (7% drop in market cap, massive media attention, regulatory approbrium, etc.), but the event is nevertheless impacting Donnelley's reputation adversely. Looking first at the Vital Signs, (Column 2 Row 2 below), the current RVM volatility is only slightly higher than the historic volatility, both below the median at the 17th to 19th percentile. The company’s reputational rank is the 33rd percentile, ROE at the 13th percentile, and forecast stability is below the median. Basically, the quick view is that baseline expectations among stakeholders are low.

Indications that stakeholders as a group do not expect the incident to be critical, but recognize that no good will come out of it, are reflected in the three volatility measures (Column 1 Rows 2-4, and Column 2 Row 4). All show low levels of volatility for both CRR, a measure of reputation rank, and RVM, a non-financial measure of reputational value. The volatility, which is indifferent to overall market risk (VIX), is leading to a further loss in  both reputational value and reputation ranking relative to peers. Add to that the company's drop in  equity value, and you have near-universal concurrence among stakeholders: thumbs down.


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