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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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KBR: Absent the fog of war

C. HUYGENS - Wednesday, March 20, 2013
A steady diet of military contracts in a drawn out war can create expectations of financial certainty. Ironically, the transparent benefits afforded by the fog of war become opaque as the fog lifts. This leads to unexpected uncertainty, and is reflected in the Steel City Re reputational value metrics. It also leads to an increased risk of surprise and enterprise value collapse, as Consensiv, the reputation consultancy, has recently demonstrated.

KBR, Inc., once a subsidiary of Halliburton, benefitted greatly from the war in Iraq, now winding down. As reported earlier this week in the Financial Times, the top 10 contractors secured business worth at least $72bn between them. "None has benefited more than KBR, once known as Kellogg Brown and Root. The controversial former subsidiary of Halliburton, which was once run by Dick Cheney, vice-president to George W. Bush, was awarded at least $39.5bn in federal contracts related to the Iraq war over the past decade."

Alas, the war is ending. The Steel City Re reputational value metrics show that when compared with 136 other Engineering and Construction services firms, the current RVM volatility (a measure of reputational value uncertainty) at the 58th percentile and the CRR (a measure of relative reputational ranking) also at the 58th percentile place this-once-giant-among-contractors in a median role. The negative investor response has moved this firm to a below median return on equity at the 23rd percentile and more unstable expectation for the future.

The generalized lesson is that years of little volatility reasonably create expectations of more of the same. When reality intercedes, the reactions can often be outsized, The RVM is a measure of reputational value; the current RVM volatility is a measure of consensus on that value. Spikes in RVM volatility are indicators of surprise, and it is rarely a good thing.


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