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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Chesapeake: CEO's departure reduces risk

C. HUYGENS - Wednesday, January 30, 2013
It bears repeating: Reputational value is how the markets reward or punish a company in ways that are either joyfully or painfully transparent on corporate financials.

Reputation is an expectation, some say confidence, in an outcome. Because of the outsized influence CEOs have on a company's direction, stakeholders often (reasonably) confuse a CEO's personal reputation with a company's reputation.

Risk, a threat to a desired outcome, is equally influenced by a CEO's action. Today's Bloomberg Businessweek reports that five-year credit-default swaps on the Chesapeake Energy Corp.’s (CHK) debt dropped 72.5 basis points to 391.9 basis points (15% reduction) as of 7:30 a.m. in New York after the company announced yesterday that Chief Executive Officer Aubrey McClendon would retire. In other words, the chances of the firm defaulting on its debt is expected by investors to decrease with McClendon's retirement. All things being equal, that should translate into lower costs the next time Chesapeake rolls over its debt.

To understand how the expectations by other stakeholders -- customers, employees, vendors, equity investors, creditors, and regulators -- create or reduce value through behaviors that are equally transparent on corporate financials, read the new book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others.

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