MISSION INTANGIBLE

Reputation: Who's asking?

Wed, 19 Jun 2013 13:17:00 GMT

Reputation is a reflection of the implicit social contract between a company and its myriad stakeholders. One size does not fit all.

Ron Orol reports this week in Capital Report that supply-chain management, interest-rate risk and sustainability issues are three topics that are high on the list of concerns raised by investors in U.S. corporations. He writes:

Lynn Turner, a former chief accountant at the Securities and Exchange Commission, said shareholders’ focus will vary by industry. Big banks, for example, need to explain to investors how they will manage their risk as interest rates rise, he said. “If you are retail corporation, supply-chain stuff has got to be at the top of the list,” Turner said. “If you are a financial institution today, what is going on with interest rates and, as interest rates rise, being able to manage your debt, being able to explain to investors how you are positioned to deal with the risk as interest rates rise and spreads change is going to be very important.” He added that oil and gas companies invested in natural resources will need to respond to investors with environmental concerns.

Steel City Re calculates measures of reputational value that report company performance against that which stakeholders expect -- the implicit social contract. Those metrics "aren’t value judgments, they’re tangible proof of the quality of stakeholder relationships."

Consensiv, a consultancy focusing on returns in investments in reputation and which incorporates the licensed metrics into robust management solutions, explains the inherent value in what are agnostic measures. "We don’t decide what causes matter, or how to best substantiate our beliefs that they should have effects. We measure effects as a platform from which to better explore and reveal causes."

Companies seeking to maximize stakeholder value, the value of the implicit social contracts, aka, reputational value, will be sure to know what is of greatest concern to their stakeholders. They will find creative ways to enable stakeholders to appreciate and value that which they are doing, and monitoring tools to ensure that they are meeting stakeholders' expectations.

Harvesting Intangibles. MIMB Program 28 June 10h00 ET

Tue, 18 Jun 2013 07:00:00 GMT

Briefing Friday 28 June May at 10h00 ET

Program: How to Celebrate a Cornucopia of Intangibles

Texts as old as the bible affirm that one reaps what one sows. Returning to present times, what does one sow to harvest intangibles, and is there a more modern text with a less pithy presentation of strategy?

Joining our conversation are Andrew J. Sherman, author of 17 books on the legal and strategic aspects of business growth, franchising, capital formation, and the leveraging of intellectual property, and a partner with Jones Day; and Paul Liebman, an OCEG fellow, an ethics and integrity thought leader, and a member of the Society's Reputation Leadership Council.

Jonathan Salem Baskin, author of Tell the Truth, moderates. Learn more.

RepuStars 2013 June 15

Mon, 17 Jun 2013 12:54:00 GMT

Weekly Reputation Index Metrics

At the close of trading June 14, 2013, REPUVART and REPUVAR stood at 3364.62 and 2849.19 respectively. Over the past four weeks, the former has changed by -3.49%, while the latter has changed by -3.69%. The benchmark S&P500 Composite Index stood at 1416.91 (31 Dec 2001=1000) and has changed over the past four weeks by -2.44%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 26.91% and 24.36% respectively; the S&P500 Composite Index has changed by 22.39%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 62.35% and 54.76% respectively; the S&P 500 Composite Index has changed by 45.86%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

Europe, if one is to believe the financial news, is slowly on the mend while the US’s economy is perhaps not as robust as the markets would suggest. This is good news for RepuStars which has indicated that the past few months of S&P500 performance were more froth than substance.

In bubbles, the RepuStars algorithm has successfully found the “best opportunities in the bubble” based on implicit arbitrage linked to the reputational metrics. RepuSPX, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is substantially ahead of the market index for the calendar year by 10.91% this week at 23.04%. Its trailing twelve-month returns of 35.66% are beating the market by 13.27%.

RepuStars increased its spread loss. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME) which holds on to first place with returns of 57.30%, Wellpoint Inc (WLP) which holds onto second place with returns of 31.83%, and Bed Bath & Beyond which returns to third place with year to date returns of 24.90%. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, scandal-plagued VeriFone Systems Inc. (PAY) plunges further to a loss of -48.78%, Fusion I-O, now sans its founders, is down at -38.06% Royal Gold Inc. (RGLD) is down -33.22%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

The RepuStars® Variety Corporate Reputation Index calculated by S&P/Dow Jones Indexes is the first-ever composite equity index based on a quantitative value strategy informed by the Steel City Re Reputational Value Metrics. The metrics comprise non-financial indicators of reputational value (RVM) and ranking (CRR). The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR. Click here for real time quotes.

The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to Steel City Re’s proprietary Reputational Value Metrics™, which track 7400 companies weekly. The principles behind measuring reputational value are described in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others (2012, Apress).

The RepuStars indices are reconstituted annually in the first week of January and posted by S&P/Dow Jones Indexes in the third week. The Indices were last reconstituted 20 Jan 2012.

Reputation, Risk and Finance

Reputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:

1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the second Friday of every month, read the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012) or its predecessor, Mission: Intangible. Managing risk and reputation to create enterprise value (2010), available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers.
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.

Notices

Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). “RepuStars” and “Steel City Re” are registered trademarks of C. Huygens & Co. LLC. The method underpinning the RepuStars Variety indexes is subject to a pending patent assigned to C. Huygens & Co. LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (“S&P Dow Jones Indices”) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. Past performance of an index is not an indication of future results. All information provided by S&P Dow Jones Indices is general in nature and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments offered by third parties that are based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that seeks to provide an investment return based on the performance of any Index. Investment products based on the RepuStars Variety Corporate Reputation Indexes are not sponsored, endorsed, sold or promoted by Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC, or their respective affiliates and none of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in this piece does not in any way reflect an opinion of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates on the investment merits of such company. None of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates is providing investment advice in connection with these indexes.

ExxonMobil and BP: Promises, promises

Thu, 13 Jun 2013 13:25:00 GMT

Nearly three years ago, BP suffered a near fatal reputational disaster precipitated by a series of technical failures leading to a massive oil spill in the Gulf of Mexico. There are many reasons why the technical failures led to the spill. More important, the accident was a reputational disaster because every stakeholder group held BP culpable of willfully breaching its commitment of responsible, sustainable drilling.

Yes, BP's 'Beyond Petroleum' campaign was wickedly effective. It established an implicit social contract, and stakeholder reasonably expected conformance. A key going forward lesson should have been, 'manage expectations.' ExxonMobil learned it after the Valdez disaster in Prince William Sound. Since then, they have strategically managed expectations, and their reputational value has benefited.

BP, on the other hand, appears to be making promises again. Its campaigns all but declare, "The environment has been restored, tourism is back, the company has made its operations safer and, perhaps most importantly, it spends more money in the U.S. than any of its competitors. It’s time to forgive and forget." Writes Jonathan Salem Baskin in Forbes, "Perhaps its reputation would have been far better served if it had used the Gulf spill as a chance to strengthen and reaffirm its stakeholder understanding of its business. It could enable them to make more informed decisions about energy, while laying the groundwork for more understanding and even forgiveness when the next crisis occurs. It might even enhance the tangible worth of its reputation."

Objectively, the metrics back Baskin's suggestion. The Steel City Re reputational value metrics show that XOM has a significant Reputation Premium, as termed by Consensiv, relative to BP. In a peer group of 52 integrated oil companies, Exxon's reputation ranking is at the 100th percentile; BP's is the in 4rth quartile at 84%. In addition, BP's current RVM volatility, a measure of stakeholder consensus (Consensus Trend) is rising. Its not at a material, or "feverish" level by any means, but the movement of the metric concurrent with the communications campaign suggests not everyone is buying the story.

Grainger: Profile of a Consensiv 50 constituent

Tue, 11 Jun 2013 07:00:00 GMT

The CONSENSIV 50, published monthly, is the first-ever ranking of global leadership in reputational value based on stakeholder behaviors with measurable financial consequences. The ranking provides a number of new perspectives on corporate governance and are based on a decade of data on 7000+ companies that are the underpinnings of Steel City Re’s reputational value insurances and the S&P Dow Jones RepuStars Variety Corporate Reputation Index (Ticker: REPUVAR), the world’s only reputation-linked composite equity index*.

These data are objective financial measures, such as premium pricing, supplier and vendors terms, labor relations and productivity, and borrowing costs. The resulting insights have proven to be deep and reliable tools to measure the outcomes of corporate governance.

W. W. Grainger is a constituent of both the May and June 2013 league tables. The metrics indicate Grainger is a great company. Non-quantitative measures concur. Seeking Alpha writes, "W.W. Grainger (GWW) is one of the best performing companies in the United States. It's reputation within its industry is outstanding amongst its employees, suppliers, customers, and even competitors. More importantly for shareholders, it has demonstrated the ability to generate returns."

Looking at the metrics of this Consensiv 50 constituent member in greater detail, the company's CRR, a relative ranking of reputational value relative to the 70 peer companies in the Wholesale Distribution sector, is at the 100 percentile. It is a company that, in the words of Consensiv, is maximizing its Reputational Premium. Furthermore, there appears to be a general consensus that this is deserved. The current RVM volatility, the Consensus Trend, a measure of reputational value uncertainty, is in the 2nd percentile. It doesn't get much lower, or much better.

Noble Energy: NBL is NGE

Mon, 10 Jun 2013 08:37:00 GMT

The energy sector is hot. Sure, its chief product is combustible or otherwise exothermically inclined. But, in a financial sense, the reputation of the sector -- the economic benefits to energy sector companies arising from the social contract between them and their stakeholders -- is equally feverish.

Body temperature, as most everyone knows is a measure of health. It is one of a handful of vital signs that serves as an early indicator of a health problem.

Equally so, fever is an indicator of a reputational health problem. The measure of reputational fever is the Consensus Trend, technically, an exponentially weighted moving average volatility of the company's reputational value metric. Causes of reputatational value fever include:

Unexpected CEO change
Conspicuous shareholder activism
Poor M & A decisions
Poor safety record
Loss of investment grade credit rating
Inability to access capital at competitive rates
Poor fleet utilization
Concentration of assets
Poor Return on Capital and Allocation decisions

Noble Energy, the top ranking energy sector firm in the June 2013 Consensiv 50 rankings, has been spiking a fever ever since the monthly rankings were released. Mind you, Noble didn't actually place in the top 50. It ranked around 200, but received notice in that it topped the league table for its sector which is generally having reputational value problems.

In the two weeks since Noble Energy was recognized, it's come down with a fever. Actually, it is both spiking a fever and losing reputational value, what Consensiv terms its Reputational Premium. The Vital Signs chart (top row, left) shows that Noble Energy's reputation ranking has slipped from the #1 position among its peers to the 94th percentile. Its current RVM volatility is in the 77th percentlle among the 191-members of the Oil and Gas Production sector peer group. The fever spike is best seen in the Current RVM Volatility chart (top row, right). RVM is a non-financial measure of reputational value calculated by the reputational value insurer, Steel City Re. Values in excess of 7% are associated with, or are leading indicators of, material changes in market capitalization. High values reflect a lack of stakeholder consensus. Over the past two weeks, Noble has spiked to 15%.

Here's how financial analysts view the company, as summarized by Watchlist News:

Noble Energy (NYSE: NBL) had its price target cut by Barclays Capital from $140.00 to $70.00 in a research report sent to investors on Tuesday morning..A number of other firms have also recently commented on NBL. Analysts at Raymond James upgraded shares of Noble Energy from a market perform rating to an outperform rating in a research note to investors on Thursday, May 30th. Separately, analysts at JP Morgan Cazenove downgraded shares of Noble Energy from an overweight rating to a neutral rating in a research note to investors on Thursday, May 30th. Finally, analysts at TheStreet reiterated a buy rating on shares of Noble Energy in a research note to investors on Friday, May 24th. One investment analyst has rated the stock with a sell rating, eight have given a hold rating, twenty-two have issued a buy rating and two have assigned a strong buy rating to the company’s stock. Noble Energy currently has an average rating of Buy and an average target price of $107.13.

The analysts are confused. So are other stakeholders. The balance of the reputational measures, shown below, point to a negative future. Noble Energy, ranked at 200, may have been the best of the energy sector. But NBL, as it is known by its ticker, is apparently NGE (Not Good Enough).

Drilling: Move along now, nothing to see here

Sun, 09 Jun 2013 17:05:00 GMT

For the hard of hearing, the professional media and independent blogosphere helpfully offer signal amplification. Wag the Dog’s Robert DeNiro knows of what he speaks when he insists, “It must be true. I saw it on TV.” Conversely, there are believers in the existential paradox that if something happened, and know one hears about it, etc. (If a tree falls in the forest…).

Huygens, who minored in the philosophy of science, and is an American Pragmatist, is less of a believer and more of an observer. Yes, the tree may have fallen and not been heard (by a human). But just as chaos theory posits that a butterfly can trigger a hurricane, the falling tree can trigger secondary and tertiary reactions. Even without the media, these effects can amplify the consequences of an event.

Consider, then, the efforts by the gas drilling industry to keep a problem under wraps, as Bloomberg’s 7 June headline suggests: "Drillers Silence Fracking Claims With Sealed Settlements." With no more success than officer Frank Drebbin, and in no way to argue the merits of the underlying claims, the industry’s efforts to mute awareness is enhancing interest and, critically, reputational value uncertainty. Observably, the net cost is heavily discounted enterprise value.

Consensiv, the reputational value consultancy, has determined that when uncertainty in a company’s reputational value as measured by its exponentially weighted volatility, or as Consensiv calls it, its Consensus Trend, exceeds 7%, material value changes are just over the horizon. Basically, the Consensus Trend is an indicator of reputational health.

As of 7 June, more than 25% of the 191 companies comprising the Oil & Gas Production peer group were febrile with Consensus Trend values in excess of 10%. As a result, the entire sector is experiencing reputational value suppression, reduced Reputation Premium in Consensiv’s language, as measured against the 7200 companies for whom weekly reputational value metrics are available.

Silenced, perhaps, but not unobserved.

RepuStars 2013 June 8

Sat, 08 Jun 2013 15:41:00 GMT

Weekly Reputation Index Metrics

At the close of trading June 7, 2013, REPUVART and REPUVAR stood at 3368.04 and 2852.09 respectively. Over the past four weeks, the former has changed by -2.19%, while the latter has changed by -2.38%. The benchmark S&P500 Composite Index stood at 1431.42 (31 Dec 2001=1000) and has changed over the past four weeks by 0.59%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 25.23% and 22.69% respectively; the S&P500 Composite Index has changed by 23.97%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 72.97% and 64.82% respectively; the S&P 500 Composite Index has changed by 54.74%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

It’s June 2013, and the world’s equity markets are gaming the central bankers at an unprecedented level. The issue is quantitative easing and the cost of capital. Most anyone betting on economic fundamentals is losing. Earlier, it was sovereign debt. Over the past month, the junk bond market capitulated. Ed Marrinan, head of macro credit strategy at RBS, explained to the Financial Times why high-yield bond fans had all deserted the sector at once. “When the market lacks clarity, when it lacks consensus, that is when you end up with volatility and that takes its toll on risk assets.” True, but when there is pressure to perform, the safest risk assets are those that are indexed. And so the major market indices are rocketing on the basis of demand for their securities rather than confidence in the underlying drivers of value. That’s a bubble.

In bubbles, the RepuStars algorithm has successfully found the “best opportunities in the bubble” based on implicit arbitrage linked to the reputational metrics. RepuSpx, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 7.64% this week at 18.82% ROI for the year. Its trailing twelve-month returns of 33.93% are beating the market by 8.96%.

RepuStars, plagued by a few companies that have greatly disappointed stakeholders, increased its spread loss. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME) which holds on to first place with returns of 48.19%, Wellpoint Inc (WLP) which holds onto second place with returns of 30.53%, and Genpact Ltd (G), which moves up to third place qith year to date returns of 22.22%. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, scandal-plagued VeriFone Systems Inc. (PAY) plunges further to a loss of -44.57%, Fusion I-O, now sans its founders, is down at -36.52% Royal Gold Inc. (RGLD) is down -32.32%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

Reputation, Risk and Finance

Notices

It Depends: Measuring the measures of reputation

Thu, 06 Jun 2013 15:22:00 GMT

Ask someone to explain the meaning of the word, ‘reputation,’ and you will learn much about their world view. The same goes for institutional reputation reports, as the book, Reputation, Stock Price, and You (Apress, 2012) demonstrated. Not that the discrepancies of world view were necessarily material when the sole owners of corporate reputation lived in the marketing department. But now that the centrality of reputation is recognized at the highest levels of a company, measuring reputation for the purpose of managing it takes on greater importance.

It is therefore significant that the trends of non-correlated indicators of reputation observed last year between measures published by the Reputation Institute, Harris Interactive, Fortune/Hays, and Steel City Re (now with Consensiv) carry over into this year. The Reputation Institute's REPTRAK report is one of the three major reputation reports announced annually in the spring. REPTRAK is around 7 years old. Harris Interactive, the market research company, publishes the HARRIS RQ. It's been around 14 years and spawned the REPTRAK report after a fallout between the executives of Harris and the founder of the Reputation Institute. Fortune Magazine has published for the past 30 years a ranking called "The World's Most Admired Companies" that they've produced with the human resources consultancy, Hay Group. They now call it a Reputation Ranking, since Reputation is the "hot business concept."

Contrasting these survey-based reports is Steel City Re's algorithmic measures of reputational value. It has a 12-year history, but unlike the three survey reports that are published annually, Steel City Re's metrics are published weekly. The timeliness of the data are why only Steel City Re's metrics are used to inform a range of financial products including hedge fund strategies, reputational value insurances, a composite equity index (Ticker: REPUVAR) calculated and published daily by Dow Jones Indexes and reported by Huygens weekly, and the monthly Consensiv 50.

While the three major reports are based on public surveys, they use slightly different methods. Because the Harris RQ and Reputation Institutes REPTRAK had a common development path, they use a similar brand research-type approach. Using an online questionnaire, they invite members of the general public to rank companies well-known to the respondent. The Reputation Institute looks at 7 axes that their research shows correlate with an emotional bond: Products/Services, Innovation, Workplace, Governance, Citizenship, Leadership and Financial Performance. In 2013, 55,000 respondents completed the surveys. The Harris RQ looks at 6 axes and obtained data in 2013 from 4600 respondents. Both surveys were conducted in February/March.

The Fortune/Hay survey targets a more business-centric population. For the 2013 survey, the survey asked 3,800 executives, directors, and analysts to pick the best companies and rank them on 9 axes that have a business focus: Innovation, People management, Use of corporate assets, Social responsibility, Quality of management, Financial soundness, Long-term investment, Quality of products/services, and Global competitiveness.

Steel City Re's metrics, as readers of this blog know, algorithmically extract the reputational value created in the social contract with customers, employees, suppliers, investors, etc. The algorithms process public data comprising decision market expectations of sales, net income & equity future returns; financial efficiency measures, including gross, operating and net margins; balance sheet factors, including cash and book value; and measures that help group and normalize values, including outstanding shares and moving average weightings. The calculations consume about 8 minutes. To compare SCRe data with the three surveys, Huygens selected data from the week of February 28, 2013.

The four measures of reputation and/or reputational value following three different methods have always yielded a wide range of results. This should not be too surprising since the Harris and Reputation Institute methods were designed to yield data to help the marketing community benchmark brand awareness and brand recommendation; the Steel City Re methods were designed to yield data to help risk, financial, and governance executives manage enterprise reputational value; and the Fortune data helped identify executive talent (and probably helped Fortune sell advertising space).

The 2012 book showed that the various methods produced data with poor correlations. It is no different with the 2013 data. As in 2012, the greatest contrast is between the Reputation Institute and Fortune. In 2012, they showed only a 20% correlation. This year, the correlation measured at -2%. In 2012, the Reputation Institute and the Harris Interactive data correlated at 94% which was reasonable given the similar methods. This year, they correlated only 62%. Looking at average cross-correlations among the four measures, Harris Interactive measured in at 38%, Steel City Re at 29%, Reputation Institute at 25%, and Fortune at 20%. Looking at the spread of cross-correlations, an indication of consistency, Steel City Re's measures showed the greatest consistency with the narrowest spread at 27%, Harris and Fortune were more divergent at 42%, and the Reputation Institute's REPTRAK showed the greatest scatter at 64%.

Procter & Gamble: Its all about reputation

Sun, 02 Jun 2013 20:44:00 GMT

Huygens was musing why Procter & Gamble invited AG Lafley to assume the helm of a ship he left four years ago. At that time, he turned over command to his hand-picked successor. “I am retiring with confidence in Bob McDonald and his team," said Lafley. "This is the right time to complete our management transition.” Yes, the ship has foundered since then, so there was cause for concern. More than concern, frankly.

But in a Columbo-like moment of angst, Huygens couldn't make the pieces add up. Lafley arguably left P&G in tough shape having gutted much of the organic R&D to the benefit of buying customers and markets. Lafley groomed his successor who leaves as a failure. P&G's management bench is deep and strong. And given the recent uproar over JPMorgan Chase's Dimon holding titles of both CEO and Chairman, one would have thought the board at P&G would have been reticent to offer Lafley not two, and certainly not three, titles.

And what of those who offered the invitation? P&G's board comprises some of the best of the best: The CEOs include Boeing Co's James McNerney, Hewlett-Packard Co's Meg Whitman, American Express Co CEO Kenneth Chenault, and Macy's Inc CEO Terry Lundgren; Archer Daniels Midland Co CEO Patricia Woertz, Frontier Communications Corp CEO Maggie Wilderotter and former Mexico President Ernesto Zedillo. Now while it is true that some of the board members are struggling with major challenges on their home turf, they are consummate professionals and are not the type to "let matters slip." In fact, they are all A-type personalities unlikely to yield for convenience. Less, so, even, if under stress.

Huygens thinks he gets it. There was no obvious solution to the P&G problem. Some board members thought the problem was McDonald. Others that McDonald was dealt a bad hand. No critical mass could be built around a going-forward strategy. When one thinks about a board's duty -- picking the CEO, approving a strategy, and protecting the firm's assets -- it's tough in the midst of a crisis to pick a new a leader to execute a strategy that doesn't exist.

And this brings us to the crux of the matter. No corporate director ever wants to be accused of failing in his or her duties of care or loyalty by picking a CEO who can not win, a strategy that can not succeed, or in squandering valuable corporate assets -- in this case, Procter & Gambles own once-stellar reputation. For directors, it is a matter of personal reputation. There's no hiding. Think about the three directors at JPMorgan Chase who have been saddled with the London Whale event. Ellen Futter, David Cote and James Crown had only slim majorities of shareholder support at last month's Annual General Meeting. And we all know about it, because transparency is the new watchword. And as far as Huygens knows, P&G does not have Reputational Value Insurance to protect its Directors.

As the joke once went, "no one ever got fired for buying IBM," Huygens hypothesizes there was only one safe choice that a plurality of Directors could agree to back: AG Lafley. The road to Abilene went right past Lafley's front door.

Huygens values his opinion. He values the opinions, and wisdom of the crowds, even more. Turning to the Steel City Re measures of reputational value which capture the wisdom of crowds, the stakeholders are not letting their guard down. Since last week, just before the announcement of changes in command, the company's reputational ranking (Reputational Premium by Consensiv's name), CRR, sank another 2 percentile points relative to the 43 member-peer group to the 81st percentile. Its Current RVM volatility, a measure of overall stakeholder understanding (Consensus Trend, by Consensiv's name) remained elevated at the 73rd percentile, and in excess of 4.5%. In fact, Procter & Gamble, which was ranked #18 in the Consensiv 50 league table of the most valuable reputations among the largest firms in the world in May 2013, fell off the list completely in the June 2013 report.

More complicated measures of reputational value and trend paint an equally disconcerting image. Reputational value velocity is increasingly negative, the reputational value vector is approaching 0 from a negative incline, and both trend measures are negative.

P&G puts, anyone?

RepuStars 2013 June 1

Sat, 01 Jun 2013 17:00:00 GMT

Weekly Reputation Index Metrics

At the close of trading May 31, 2013, REPUVART and REPUVAR stood at 3405.78 and 2887.07 respectively. Over the past four weeks, the former has changed by -0.36%, while the latter has changed by -0.57%. The benchmark S&P500 Composite Index stood at 1420.41 (31 Dec 2001=1000) and has changed over the past four weeks by 1.01%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 31.87% and 29.30% respectively; the S&P500 Composite Index has changed by 27.60%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 72.95% and 64.97% respectively; the S&P 500 Composite Index has changed by 52.30%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

Rational exuberance fed by the world’s central bankers continues to drive “errors in decision making” as termed by behavioral economists. Rational expectations, which are central to assessments of reputational value, are taking a back seat to other competing drivers of stock price. RepuSpx, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 7.91% this week, a slip back from last week. Its trailing twelve-month returns of 34.73% are beating the market by 10.28%, up another 110 basis points.

RepuStars, plagued by a few companies that have greatly disappointed stakeholders, decreased its spread loss by 9 basis points. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME) which returned to first place with returns of 33.71%, Wellpoint Inc (WLP) which moves back into second place with returns of 29.82%, and Michael Kors Holdings (KORS) which returns to the top three at 20.28% year to date returns. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, Fusion I-O, now sans its founders, is down less at -34.44% Royal Gold Inc. (RGLD) is down less at -30.95%, and scandal-plagued VeriFone Systems Inc. (PAY) is about the same at a loss of -24.33%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

Reputation, Risk and Finance

Notices

Sears Holdings: Know when to hold, when to fold

Thu, 30 May 2013 01:03:00 GMT

Financial wags are talking about retail sector mergers. The buzz: "How does Neiman Saks Fifth Avenue sound? Or Saks Fifth Avenue Marcus?" Or this one: Sears and JCPenny? Assuming the exercise has greater prospects then rearranging the deck chairs on the Titanic, why not? Both JCPenny and Sears could use some reputational help. Huygens spent time recently on the former's near suicide. Here are the Steel City Re reputational value metrics for the latter.

Briefly, the RVM volatilties are in the 14th percentile indicating the consensus trend among stakeholders is set -- and it is not pretty. The reputational rank, aka reputational premium, is rock bottom for the peer group. With numbers these bad, stakeholders would welcome almost any surprise.

Procter & Gamble: The king is dead. Long live the king!

Mon, 27 May 2013 14:20:00 GMT

In December 2009, outgoing P&G CEO AG Lafley said, “I am retiring with confidence in Bob McDonald and his team. This is the right time to complete our management transition.” Last friday, wags were reading into communiques the reverse. "This is the right time to restore our former management transition."

There are several ironies about all this. First, after weeks of governance experts piling on to the idea that Jamie Dimon could not be trusted with both the CEO and Chairmanship roles at JPMorgan Chase, nary a negative word could be found suggesting that there was anything wrong with AG Lafley taking on the roles at P&G of Chairman, CEO and President. Second, there was near-universal accolades for Lafley's reputation as a giant in innovation -- a point Huygens disputed previously when he suggested that P&G's current problems are a direct result of Lafley's strategy.

However, as an American Pragmatist, Huygens appreciates that what matters is what the markets expect. It was apparent to all that under McDonald, P&G’s profit margins, market share and stock price lagged relative to peers such as Unilever PLC (UL), Colgate-Palmolive Co. (CL) and Clorox Inc. (CLX). In light of abysmal performance, those expectations, reflected in the Steel City Re reputational value metrics (or the Reputation Premium, Consensus Trend, and Consensus Benchmark as those metrics are explained by Consensiv) are informative.

This snapshot, taken at the close of markets last Thursday only hours before the announced change of leadership, shows evidence of stakeholder unrest peaking nearly three weeks ago when the Current RVM Volatility (or Consensus Trend) peaked at nearly 5% and was at the 73rd percentile of the peer group after nearly a year of hovering in a much lower state of anxiety at the 33rd percentile. Meanwhile, return on equity dropped to the 29th percentile representing a 10-point drop from September of last year and consistent with Huygens' projections. Over the same period, the Current CRR Rank (Reputational Premium) dropped from the 95th percentile to the 83rd percentile.

The data suggest that McDonald's fate was sealed about one month ago. Owing to the time of sampling, the data do not show what the majority of stakeholders expect from Lafley going forward, although it is fair to say that the 4% equity boost Friday signals that equity investors, at any rate, are optimistic.

RepuStars 2013 May 25

Sat, 25 May 2013 07:00:00 GMT

Weekly Reputation Index Metrics

At the close of trading May 24, 2013, REPUVART and REPUVAR stood at 3421.88 and 2903.52 respectively. Over the past four weeks, the former has changed by 3.25%, while the latter has changed by 2.76%. The benchmark S&P500 Composite Index stood at 1436.83 (31 Dec 2001=1000) and has changed over the past four weeks by 4.26%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 27.49% and 25.10% respectively; the S&P500 Composite Index has changed by 25.18%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 74.34% and 66.18% respectively; the S&P 500 Composite Index has changed by 53.59%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

Earlier this week, Ben Bernanke suggested the Federal Reserve could begin ending QE “in the next few meetings” if the jobs market continues to improve. “If we do that, it would not mean that we are automatically aiming towards a complete wind-down,” he cautioned, in testimony to Congress. The market’s response, Thursday, was an indication of the degree to which much of the current excitement can be attributed to the will of central bankers.

Rational exuberance continues to drive “errors in decision making” as termed by behavioral economists and rational expectations, which are central to assessments of reputational value, are taking a back seat to other competing drivers of stock price. RepuSpx, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 9.66% this week, a notch up from last week. Its trailing twelve-month returns of 33.99% are beating the market by 9.09%, up another 52 basis points.

RepuStars, plagued by a few companies that have greatly disappointed stakeholders, decreased its spread loss by 30 basis points. The greatest gains in the portfolio for the year are being reported by Wellpoint Inc (WLP) which moves into first place with returns of 29.84%, GameStop Corp (GME) which dropped into second place with returns of 29.48%, and Hain Celestial (HAIN) which joins the top three at 21.09% year to date returns. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, Fusion I-O, now sans its founders, is down -37.02% Royal Gold Inc. (RGLD) is down -35.23%, and scandal-plagued VeriFone Systems Inc. (PAY) is up to a loss of only -23.97%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

Reputation, Risk and Finance

Notices

Cornucopia of Intangibles - MIMB Program 28 June

Fri, 24 May 2013 13:13:00 GMT

Briefing Friday 28 June May at 10h00 ET

Program: How to Celebrate a Cornucopia of Intangibles

Herbalife: Resilience even a hedge fund could love

Thu, 23 May 2013 12:25:00 GMT

If the nameless and faceless blather of business reporting leaves you hungry for drama, you'd get more than a full plate at Herbalife. The core issue is captured by Bloomberg's story title this week, "Herbalife: Pyramid Scheme or Juggernaut?" The drama behind the story is the battle of hedge fund managers with egos equal to the task. The current score, headlined by Forbes this week, "Carl Icahn And Herbalife Are Crushing Bill Ackman."

The Steel City Re reputational value metrics, having correctly anticipated the JPMorgan Chase vote this past Tuesday through an analysis of the consensus trend, as Consensiv describes the process, affirm the expectations of stakeholders for a brighter future. Looking first at the underpinnings of the consensus trend, the Current RVM Volatility, the value has decreased from a worrisome 7% to the peer median (technically, 60th percentile) of around 2% relative to the 11 companies in the food distributors sector. The CRR, a measure of the reputational premium value, is also at the 60th percentile which is impressive given the events of the past few months. Return on equity, reflecting reasonable reticence by equity investors, is lagging at the 10th percentile suggesting by the logic underpinning the RepuStars Variety Corporate Reputation Composite Equity Index (Ticker: REPUVAR) that there is significant upside opportunity.

Additional background on these measures of reputational value can be found in the 2102 book, Reputation, Stock Price, and You.

JPMorgan: Bowl Game Post-Mortem

Wed, 22 May 2013 19:55:00 GMT

The votes are in and by a supermajority, Jamie Dimon is still both CEO and Chairman of JPMorgan Chase. Notwithstanding a concerted effort by the proxy services, ISS and Glass, he was returned to the dual role with a stronger showing than last year's simple majority.

For readers of this blog, the outcome was expected, according to an analysis of the Steel City Re reputation metrics by the advisory firm, Consensiv, and their Consensus Trend measure. While the outcome was not in doubt from a reputation-based model of behavior, a post-mortem is still valuable. In this regard, Huygens writes with authority having served as Deputy Coroner in Los Angeles County in a prior life.

Using Steel City Re's repetitional value metrics, Consensiv scores reputational value using a proprietary algorithm to calculate net expected behaviors. It is agnostic to qualitative values of what should matter to stakeholders, and measures instead the outcomes of whatever observably matters.

Like a jury, stakeholders as a group bring to the table a simple, unvarnished understanding of the facts. It is a valuable understanding described by James Surowiecki as the Wisdom of Crowds. The stakeholders understood that while companies are generally faceless, in times of crises or turmoil, their identity fuses with that of their leaders. This melding of CEO and company reputation has been studied by leading reputation experts such as Dr. Leslie Gaines Ross and summarized in the 2012 opus, Reputation, Stock Price and You.

Simply put, the stakeholders understood that the separation of CEO and Chair, allegedly on the basis of principles of good governance, would be perceived as a personal rebuke that would damage Jamie Dimon's reputation. They also understood that Dimon's personal reputation, that is, the expectations of the benefits of his leadership, were drivers of some of the excess value in JPMorgan Chase (what Consensiv terms Reputational Premium). Last, they understood that public humiliation, like a scarlet letter, would permanently stain Dimon and force his resignation. Reputational value insurances, which are designed to prevent such permanent damage to senior executives and board members, are not effective after the damage is done.

To remain in the limelight would only ensure repeated embarrassment, as the press would forever follow his name with a parenthetic reference to his fall; e.g., Tony (I want my life back) Hayward, Frederick (I would like my knighthood back) Goodwin, and the classic Michael (disgraced junk bond king) Milken. The stakeholders understood all that. The reputational value metrics, as Jonathan Salem Baskin explains in an article in Forbes today, captured behaviors that reflected those impressions.

Reputation Risks in the Supply Chain

Tue, 21 May 2013 14:05:00 GMT

John R. Lund, then the senior vice president of Disney Parks Supply Chain Management for Disney Destinations LLC, told Supply Chain Quarterly, “The reputation of a company is fundamentally affected by the choices you make in running a supply chain.” Some of the details of Disney's approch to managing its reputation through supply chain controls are detailed in the 2012 publication, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others.

Yesterday, Business Insurance magazine weighed in to the debate with an article prompted by the recent tragic collapse of a building in Bangladesh housing many clothing suppliers. There are a number of proposed strategies in the alternative reflecting the diversity of understandings of what comprise reputational risk. The most expensive, which seem to be addressing after-the-fact-liabilities, will probably not yield the best reputational results. The most efficient, however, require the paradigm shift advocated by firms such as Steel City Re and Consensiv; and by a growing number of risk advisers.

Reputation Risk Still #1

Mon, 20 May 2013 20:16:00 GMT

When the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012), was in development last spring, the pitch to publishers was, "The #1 concern of 71% of corporate directors surveyed." It still is.

Eisner Amper, the accountancy, just released their 2013 board survey. "Other than financial risk, respondents were asked to identify risks of most concern. Seventy-three percent identified reputational risk as a primary concern of their boards – a 19% increase in the number of board members who identify this as their greatest concern since the initial Survey, four years ago. The top three reputational risks cited were: Product quality, liability and customer satisfaction; Public perception and brand Integrity, fraud, ethics; and the Foreign Corrupt Practices Act (FCPA)."

JPMorgan: Bowl game, Tampa, 21 May - Dimon 1, Activists 0

Sun, 19 May 2013 07:00:00 GMT

It's last call at the betting window. Cold beers have been wagered on the outcome of the May 21 annual shareholder meeting of JPMorgan Chase. One one side, the status quo which has weathered risky times, rebounded from mistakes, and outperformed on a range of metrics. On the other side, philosophical and ideological notions of governance backed by the moral principle that less risk-taking is an inherent good. Governance blogs on LinkedIn provide ample background:

Boards and Advisors Blog 1
Boards and Advisors Blog 2
Boards and Advisors Blog 3

The quants, too, have their say. With five days, left, the Steel City Re reputational value metrics, as before, show exceptionally low levels of current reputational value (Current RVM) volatility at JPM indicating stakeholders are not expecting change.

RepuStars 2013 May 18

Sat, 18 May 2013 17:30:00 GMT

Weekly Reputation Index Metrics

At the close of trading May 17, 2013, REPUVART and REPUVAR stood at 3486.44 and 2958.31 respectively. Over the past four weeks, the former has changed by 9.05%, while the latter has changed by 8.40%. The benchmark S&P500 Composite Index stood at 1452.40 (31 Dec 2001=1000) and has changed over the past four weeks by 7.22%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 34.98% and 32.30% respectively; the S&P500 Composite Index has changed by 28.74%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 69.81% and 61.83% respectively; the S&P 500 Composite Index has changed by 48.77%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

Real estate, the markets, and consumer sentiment is all up. Unemployment compensation applications are up, too, but that is not important. The froth is too much fun.

In a continuing demonstration of “errors in decision making” as termed by behavioral economists, rational expectations, which are central to assessments of reputational value, are taking a back seat to other competing drivers of stock price. RepuSpx, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 8.69% this week, a leap from last week. Its trailing twelve-month returns of 36.35% are beating the market by 8.57%.

RepuStars, plagued by a few companies that have greatly disappointed stakeholders, is still containing its losses. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME), now in its fifth week at the top ranking with a year-to-date return of 60.32%. Wellpoint Inc (WLP holds onto second place with returns of 31.24% and Lamar Advertising (LAMR) returns to third place with a year-to-date return of 21.71%. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, Royal Gold Inc. (RGLD) leads the losers at -38.39%, Fusion I-O, now sans its founders, is down 32.99% and scandal-plagued VeriFone Systems Inc. (PAY) is down further at -27.21%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

Reputation, Risk and Finance

Notices

Boeing: Boing

Thu, 16 May 2013 16:46:00 GMT

Sir Bedevere: What makes you think she's a witch?
Peasant 3: Well, she turned me into a newt!
Sir Bedevere: A newt?
Peasant 3: [meekly after a long pause] ... I got better.

Witch burning circa 500 AD and battery burning circa 2013 are arguably unrelated, and yet here is Boeing, getting better. Not that its marketing and communications efforts can claim credit for making anyone feel better. Nor that the engineers necessarily figured out why the batteries burned. It's just that regulators have opined that the plane is safe, and having an independent third party's endorsement, like an insurance policy, signals much more reputational value than any marketing campaign ever could in this circumstance.

The Steel City Re reputational value metrics show that Boeing has bounced back to its prior levels. Relative to the 82-member Aerospace and Defense peer group, Boeing's reputation ranks in the 91st percentile, return on equity ranks in the 66th percentile, and its current reputational value metric volatility, what Consensiv terms the Consensus Trend, is down to the 34th percentile at only 1.2%.

Johnson & Johnson: Bromides and platitudes

Tue, 14 May 2013 00:37:00 GMT

It is heartbreaking to watch a company whose reputation was built on a credo in a crisis fail to appreciate the lesson it taught the world. Yes, J&J's PR was fabulous back in 1982 when cyanide found its way into bottle(s) of Tylenol. More importantly, J&J instituted robust changes in its supply chain security and at the end of the day, it was the company's ability to demonstrate extraordinary control that won it both accolades and a 30% boost in market value.

Now, plagued by one quality crisis after another, the company appears to be turning to a major PR campaign to save the day. But as Jonathan Salem Baskin, who moderates the Mission Intangible Monthly Briefings, writes for Forbes, "It’s established fact that no company (or individual) can declare truth any longer. We’ve all gotten too suspicious and jaded, and tech tools empower us to fast-forward past promises, and get to checking-up on follow-through. So company values, credos, and mission statements are worthless unless they’re translated into action. The world doesn’t need an ad campaign to show what’s “behind” J&J since it can judge the behaviors it sees. Stakeholders determine truth, not marketers."

The truths determined by stakeholders are captured, in part, by the Steel City Re Reputational Value Metrics. The measures of reputational value for Johnson & Johnson, the bases of which are described in detail in the book, Reputation, Stock Price and You, show a relatively high reputational ranking (CRR) in the 90th percentile relative to the 30 companies in the major pharmaceuticals sector. Surprisingly for a company of its size, both its historic and its current RVM volatility, measures of volatility of its reputational value, are above median and climbing. Overall, the data suggest that it is a company stakeholders would love to respect, but are having trouble understanding its current narrative.

The chatter is nice, but to borrow from another campaign, "where's the beef?"

JPMorgan Chase: Saying foolish things?

Sun, 12 May 2013 17:32:00 GMT

The chattering classes are terribly excited about the upcoming annual meeting of JPMorgan Chase. True, the banking industry is generally not all that exciting, except when it is uncomfortably so. But JP Morgan Chase has much good news to share. This part quarter, for example, its trading team had a perfect record of no losses on any day bringing in a performance that beat both Morgan Stanley and Goldman Sachs. Its M&A team also topped the league tables for the prior year, again beating Goldman Sachs. The bank's borrowing costs are rock bottom, and its CEO was offered up as Secretary of the Treasury by none other than Warren Buffet.

None of that, however, is factoring in to the chatter. The press and airwaves are dominated by expressions of outrage by proxy advisory groups that CEO Jamie Dimon, the earstwhile Treasury secretary nominee, has the audacity of being his own boss by holding also the title of Chairman. Their distress, to be shared in Tampa, Fla., on May 21, is more broadly directed at the board as a whole comprising individuals who failed to monitor the bank’s risk management, a failure highlighted by last year’s $6 billion trading loss in the company’s chief investment office. The directors stand charged with "letting down outside shareholders."

Writing for the Financial Times, Gary Silverman offers a refreshing counterpoint. In an essay aptly named "Daydreams of supervising Dimon," Silverman concludes "that just about the only person who would be truly capable of supervising Mr Dimon at JPMorgan these days is Mr Dimon himself, and that means this column leaves him as it found him – in a lonely place."

Huygens, being a numbers man, seeks comfort in the wisdom of crowds. Yet as Jacques Anatole François Thibault, winner of the 1921 Nobel Prize in Literature observed, "If fifty million people say a foolish thing, it is still a foolish thing." Huygens, being a numbers man and being from Pittsburgh and and being an admirer of Andrew Carnegie, is less interested in what people say, and more interested in what they do (or are expected to do).

Stakeholders are generally rational. Activist investors have a point, and when a company is in trouble, things need to be shaken up. Witness the value created at JCPenny by activists investors who upon the departure of then CEO Myron Ullman and brought in Apple Inc. retail giant Ron Johnson to restore integrity to the sinking retail ship. Seeking Alpha's assessment: JCP's stakeholders must be furious that the company spent $170M of their money to hire Ron Johnson and his team...only to rack up dreadful five quarters of 15%+ year-over-year declines in comparable sales. So who's in charge now? Myron Ullman.

From a reputational value perspective, JPMorgan Chases remarkable journey over the past two years has been document here previously. At the risk of having a Karl Rove moment, Huygens opined recently on a LinkedIn blog, Boards and Advisors, that the Steel City Re Reputation Value Metrics indicated no major changes at JPMorgan Chase. Huygens shared the same with friends on the LinkedIn blog of the Intangible Asset Finance Society. Updated metrics from this past week, now only less than two weeks from the annual meeting, affirm Huygen's impression. JPMorgan Chase's reputation is in generally good standing, and the current volatility of its RVM, a non-financial measure of reputational value, is at a peer-group low of less than 1% (Chart, top, row, Vital Signs and Current RVM Volatility). The data, representing the wisdom of crowds including, but not limited to pundits and shareholder advisers, indicate that as a group, no one is expecting any surprises. Or in the words of Consensiv, an advisory group, the Consensus Trend for JPMorgan Chase reflects a remarkable coherence of expectations.

Which leads Huygens to predictions in the alternative. First, it is unlikely that there will be major changes at JPMorgan Chase's Board of Directors; second, if in the unlikely scenario there are, the stock price will become quite volatile.

RepuStars 2013 May 11

Sat, 11 May 2013 07:00:00 GMT

Weekly Reputation Index Metrics

At the close of trading May 10, 2013, REPUVART and REPUVAR stood at 3443.31 and 2921.71 respectively. Over the past four weeks, the former has changed by 5.16%, while the latter has changed by 4.54%. The benchmark S&P500 Composite Index stood at 1422.98 (31 Dec 2001=1000) and has changed over the past four weeks by 2.82%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 24.81% and 22.04% respectively; the S&P500 Composite Index has changed by 20.71%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 64.61% and 56.87% respectively; the S&P 500 Composite Index has changed by 41.35%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

Another week of froth makes for good headlines for both the S&P500 and the pocket RepuSPX indices. The numbers are good, but there is a nagging concern that equity numbers are being driven more by capitulation – there is no return in debt – than it is for corporate fundamentals absent global fiscal stimulatory policies. The widening gap with non-indexed equities, and the low yield of junk debt, formerly known as high yield debt, are both consistent with this interpretation.

In a demonstration of typical “errors in decision making” as termed by behavioral economists, rational expectations, which are central to assessments of reputational value, are taking a back seat to other competing drivers of stock price. RepuSpx, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 5.5% this week, a slip from last week. Its trailing twelve-month returns of 27.18% are beating the market by 6.87%.

RepuStars, plagued by a few companies that have greatly disappointed stakeholders, is still containing its losses. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME), now in its fourth week at the top ranking with a year-to-date return of 54.76%. Wellpoint Inc (WLP holds onto second place with returns of 28.00% and Bed Bath and Beyond (BBBY) returns to third place with a year-to-date return of 22.72%. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, there’s been another shakeup. Fusion-IO, whose CEO quit this week, returns to last place; commodities in general are represented by Royal Gold Inc. (RGLD) at -31.12%, and scandal-plagued VeriFone Systems Inc. (PAY) is up a bit at -25.20%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

Reputation, Risk and Finance

Notices

Program - 17 May 2013 - Register Now

Fri, 10 May 2013 07:00:00 GMT

Briefing Friday 17 May at 10h00 ET

Program: Herbicides for Digital Forget-Me-Nots

To deal with the problem of people hearing or seeing things best not heard nor seen, the Men in Black used a neuralyzer to wipe the memory of a target or witness. The silicon of the world wide web is resilient, so more powerful tools are needed when inaccurate or biased information appears or when a reinvention is desired.

Joining our conversation are Shannon M. Wilkinson, Founder and CEO, Reputation Communications; and Michael D. Greenberg, Director of RAND’s Center for Corporate Ethics and Governance, and a member of the Society's Reputation Leadership Council. Jonathan Salem Baskin, author of Tell the Truth, moderates. Learn more.

Reputation: The future of hiring

Fri, 10 May 2013 01:59:00 GMT

In an article titled, "Future hiring will be all about reputation," Janina Conboye write for the Financial Times, "The recruitment process will be about productivity... about reputation for delivery: can you deliver in a certain time and at what cost?”

PetroChina: Reputation of a different color

Mon, 06 May 2013 19:56:00 GMT

Corporate reputation is an expectation of corporate behavior. Reputation value is the product of that expectation. This is the natural course of things according to Huygens. And according to the book, Reputation Stock Price and You: Why the market rewards some companies and punishes others. And according to Jonathan Salem Baskin, Managing Director of Consensiv, who wrote today for Forbes about PetroChina.

"The last two months of PR have not been kind to PetroChina . The company’s former chairman has been implicated in a murder and money laundering. A key team of execs resigned en masse. A giant facility has stayed shut-down by an earthquake and safety concerns, while the environmental risks of a new investment have prompted riots in the streets. Earnings are down. It’s a textbook case for a corporate reputation crisis. Only not the way you think, since the company’s reputation has stayed all but unaffected. The reasons why suggest that marketers at public companies should look at corporate reputation less as an idea, and instead measure it as a series of behaviors." The full article is a good read.

Here are the corresponding Steel City Re reputation metrics underpinning Mr. Baskin's quantitative observations. Note the following:

Top left, the historic RVM volatility, a measure of the volatility of PTR's reputational value, was very low. Mr. Baskin explains why. Now it is in the 98th percentile among the 52 peers in the integrated oil sector. The reputational value is at the median, notwithstanding all the bad press.

Top right, the current RVM volatility is approaching 5% suggesting that an increasing number of stakeholders are expecting that the status quo is unsustainable.

RepuStars 2013 May 4

Sun, 05 May 2013 07:00:00 GMT

Weekly Reputation Index Metrics

At the close of trading May 3, 2013, REPUVART and REPUVAR stood at 3418.24 and 2903.56 respectively. Both of these value are all time highs. Over the past four weeks, the former has changed by 5.93%, while the latter has changed by 5.42%. The benchmark S&P500 Composite Index stood at 1406.19 (31 Dec 2001=1000) and has changed over the past four weeks by 3.94%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 23.93% and 21.30% respectively; the S&P500 Composite Index has changed by 17.92%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 61.76% and 54.30% respectively; the S&P 500 Composite Index has changed by 37.56%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

While both the broad market S&P/DJI-calculated RepuStars Variety Index (Ticker:REPUVAR) and the pocket RepuSPX are surging ahead, the overall market is, frankly, frothy. The Financial Times pointed out Friday, that job growth has been consistently positive but sluggish, the effects of sequestration are yet to be recognized in national accounts, and while participation in the labor force is overall positive, manufacturing – the employment option for the less skilled – is down.

“The jobs figures were better than expected, but if you like gloom, they still contain a case to be gloomy. The worst number in the report was a 0.4 per cent drop in private hours worked leading to a 0.2 per cent drop in private payrolls (hours worked x hourly incomes). Less payroll income = less money to spend = less demand = less job creation in the future. Another sign of fragility was the diffusion index, which measures how broadly job gains were spread across different industries, where 50 means that as many industries created jobs as cut them. That index fell from 61.7 in February, to 56.2 in March and now 53.9 in April – indicating that the spread of jobs growth is narrowing.”

In this setting, it is increasingly apparent that rational expectations, which are central to assessments of reputational value, are among a group of competing drivers of stock price. RepuSpx, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It moved ahead of the market index for the calendar year by more than 6.3% this week. Its trailing twelve-month returns of 23.08% are beating the market by 7.06%. RepuStars, plagued by scandal-ridden companies that have disappointed stakeholders, is still containing its losses. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME), now in its third week at the top ranking with a year-to-date return of 49.8%. Wellpoint Inc (WLP holds onto second place with returns of 24.51% and Lamar Advertising Co (LAMR) remains in third place with a return of 21.38%. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, there’s been a shakeup. the greatest disappointments this year are Royal Gold Inc. (RGLD) at -31.51%, scandal-plagued VeriFone Systems Inc. (PAY) at -28.48%, and with the Euro-economy now being stimulated by the central bankers, the third worst performing company is now Walter Investment at -22.04%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.