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.

Read future M:I posts via RSS RSS

Goldman Sachs: Reputation is just fine, thank you.

C. HUYGENS - Thursday, October 31, 2013
Last week, an article in the New York Times' Dealbook declared that Lloyd C. Blankfein presided over the implosion of Goldman Sachs’s brand and reputation. Really?

Written by Jesse Eisinger who is a top-notch investigative financial journalist working for ProPublica, the charge against the company's Chairman and CEO should stick. No slouch, he and colleague Jake Bernstein were awarded in 2011 the Pulitzer Prize for National Reporting for a series of stories on questionable Wall Street practices that helped make the financial crisis the worst since the Great Depression. He and Bernstein were also finalists for the 2011 Goldsmith Prize for Investigative Reporting for the series.

Here's the funny part. Eisinger documents all the operational successes Goldman Sachs appears to be realizing and the remarkably light touch regulatory opprobrium it navigated -- all empirical proof points that stakeholders are valuing Goldman Sachs' reputation. He concludes that reputation must be irrelevant, quoting Yale legal scholar Jonathan R. Macey. “Reputation is no longer an asset in which it is rational to invest,” writes Macey in his recent book, “The Death of Corporate Reputation” (FT Press).

The problem and source of Eisinger's congnitive dissonance, as followers of the blog picked up from the opening paragraph, is lack of clarity over the meaning of reputation. It is not brand, and it can not be understood the way brand is understood -- through opinions and sentiment surveys.

Andrew Carnegie, one of Pittsburgh's most famous capitalists, explained, "As I grow older, I pay less attention to what men say, I just watch what they do." Sentiment and opinion surveys only capture what 'men' say. To appreciate a company's reputation, you need to watch what its stakeholders do. Everything else is just marketing.

Turning to what stakeholders do as evidenced by the Consensiv metrics, Goldman Sachs' Reputation Premium is at the 86th percentile having bounced near the peak these past few months. Its Consensus Trend, the uniformity with which stakeholders agree on its Reputation Premium, is high with a scatter of only 1.2%. Both values stand out as extraordinary when compared to the 80 peers in the Investment Banks/Brokers sector. The Consensus Benchmark is at a generous 10.5% indicating that the normal variance of reputational value and the associated ability of the company to exhibit resilience in the setting of bad news, is at an optimum.

Notwithstanding all the stories over the past few years, none of which present a more sinister image of Goldman Sachs than Matt Taibi's "giant vampire squid," the customers flock to its doors, employees love working for the firm, its costs of capital are reasonable, and the greatest cost of all -- regulatory burden -- somehow seems lighter.

Yes, the overall reputational health, as Eisinger points out in detail, is quite good.

For more background on the Consensiv reputation controls, click here. To view the October 2013 reputational value league table at CFO.com, click here.

We Stayed for the Show

C. HUYGENS - Wednesday, October 23, 2013
The shenanigans on Capitol Hill follow a plot line so transparent that capital markets are enjoying the Kabuki, not panicking. Investors expect a good show with a happy ending.

As explained in a note by Jonathan Salem Baskin titled, Long-Term Reputation of US Markets Appears Intact, “But investors didn’t panic. The yield on the benchmark 10-year Treasury note was 2.62 percent on Sept. 30, a day before the shutdown began. The prospect of a default should have driven the yield much higher. Instead, the yield barely budged. It never rose above 2.73 percent.”

Read more.

Reputation and the NFL (Roman) II

C. HUYGENS - Monday, October 21, 2013
It is the Monday after a solid weekend of American football that Huygens would like to memorialize with links to two business parables drawn from stories about the league. The first story deals with the relationship between reputation and regulatory opprobrium; the latter, with reputation and entity viability.

It is well known -- in fact, it is black letter law -- that regulators are to consider reputation as a mitigating factor when levying fines for regulatory infractions. the inverse is also true. In a blog posting at Consensiv, Mission Intangible Monthly Briefing moderator Jonathan Salem Baskin explains what this means at a very personal level for Detroit Lions’ defensive tackle Ndamukong Suh who was fined $31,500 for a hit on Cleveland Browns’ quarterback Brandon Weeden, even though it didn’t earn him a penalty flag during the game. Read more.

Notwithstanding its importance to the well being of a large segment of the US population, football is at the end of the day a source of entertainment. Football players, referees, and all that goes with the spectacle is, well, a spectacle. When the entertainment value of that spectacle is placed at risk, significant value is at risk for being destroyed. One way to destroy value is to reshape the expectations of the fans, who, while desperately eager for their favored team to win, expect any victory to emerge from a fairly-refereed game. Last year's lockout of the regular referees placed that expectation at risk, as CFO.com explains. Read more.

Reputation Risk Redux

C. HUYGENS - Monday, October 07, 2013
Five years ago, as Wall Street was imploding, former Federal Reserve Chairman Alan Greenspan rationalized the chaos in a speech at Georgetown University, “In a market system based on trust," he said, reputation has a significant economic value.” Last week, on the anniversary of that address, Deloitte Touche Tohmatsu Ltd. released results of a survey of more than 300 C-suite executives from around the world showing that reputational risk has emerged as the top strategic risk, overtaking brand concerns and economic trends.

These are the reasons for reputation risk's dominance, which will be addressed in San Francisco at the RIMS ERM event November 5:

  1. Rise in intangible asset fractional value and its dependence on the value of future expectations;
  2. Democratization of communications and corporate loss of messaging control in setting expectations;
  3. Rise in expectations for socially and ethically-sensitive corporate behavior; and
  4. Promulgation of Sarbanes-Oxley and Dodd-Frank legislation providing material penalties for breaches to #3.

It is impractical for companies not to demand controls for reputation risk. It is equally impractical not to transfer that risk in a manner appropriate for the losses it causes. Real risk transfer for reputation risk comes from an integrated solution that exculpates directors and officers, signals the value of reputation controls to the market, and indemnifies a diversity of losses associated with failures in the processes that underpin reputational value.

JC Penny: Pining for Hitler's teapot

C. HUYGENS - Thursday, October 03, 2013
There's bad PR, and then there is reputation-crushing reality that gets publicized. The former is noise.

This past spring, JC Penney (JCP) put a designer teapot on a billboard in Culver City, CA, and at least one viewer thought the thing looked like Adolf Hitler. The social media world lit up. The media covered the buzz. The attention didn't hurt.

The reputation-crushing news, on the other hand, is material. For JC Penny, Hitler's teapot was the good news. As far as the majority of stakeholders are concerned, it's not clear if there is any future. The reputation metrics from Steel City Re suggest that no one is expecting any change from what is a dismal reality. The Vital Signs are abysmal. Current CRR Rank (Reputation Premium) of 0.05 (percentile) among 22 companies in the Department Stores sector; current return on equity at rock bottom; and no expectation of major changes (forecast stability 100th percentile) after a flurry of hope and rise in the Current RVM Volatility (Consensus Trend) a few weeks ago, now sinking at 2.7%.

'Nuff said.

Truth in Advertising

C. HUYGENS - Tuesday, October 01, 2013
Advertising can be a powerful contributor to better and more lasting relationships with consumers and other constituent groups, but it requires a new, creative approach to how it addresses truth. Jonathan Salem Baskin, moderator of the Mission Intangible Monthly Briefings, enumerates them:

(1) Get back to communicating functional benefits
(2) Stop pretending you’re talking in a vacuum
(3) Reaffirm the goal of getting people to like your product, not your ads
(4) Set expectations, not make promises

Reputation is a product of how expectations are set, and how they are met. Read more.

Chipotle and Jet Blue: What's the message?

C. HUYGENS - Tuesday, September 24, 2013
In this week's issue of Forbes magazine, Mission Intangible Monthly Briefing moderator Jonathan Salem Baskin, Managing Director of Consensiv, asks an existential question about the meaning of the branding campaigns currently being run by Jet Blue and Chipotle. Both companies initially established reputations for doing things differently. Jet Blue provided a level of service and amenities through an energetic and committed staff that in combination comprised a superior offering; Chipotle offered an innovative approach to fast-food with a service level, production process, and quality level of fresh ingredients that couldn't be beat.

The companies were darlings of all stakeholders. But have they lost their way? Looking at the Steel City Re reputational value metrics, the two companies have strikingly different reputational value profiles. Jet Blue's Reputation Premium is below average ranking at the 38th percentile relative to its peers - it's leaving significant value on the table; even equity investors are placing the company in only the 59th percentile in terms of its trailing twelve month return on equity. Trying to squeeze a price premium or better worker concessions, better supplier terms, or better credit terms from a vague campaign doesn't seem like the best use of promotional dollars.

Chipotle is wrestling with other issues. In the past two months, its reputation premium dropped from near the top of its peer group to the 73rd percentile. Its return on equity dropped precipitously, too, to the 33rd percentile, and its Consensus Trend -- an indicator of movement in stakeholder perceptions -- for Chipotle is down to the 73rd percentile having spiked near 11%, a critical level. All these measures indicate the company's stakeholders are confused by what the firm stands for.

As Jonathan describes the campaign, it doesn't sound like there is a clear effort to address what is a clear reputational value problem. Notwithstanding recent issues, among its large market cap peers, Chipotle is relatively rich in Reputation Premium and has been a constituent of the Consensiv 50 for the past two months. Seeing a time line of the campaign against these measures would help answer the question of whether the campaign is helping or hurting. More generally, it would be refreshing to review a marketing case study where the action line between promotional content and value-creating stakeholder behavior could be tracked.

"Brand is not Reputation!" say the marketing experts.

C. HUYGENS - Sunday, September 22, 2013
When you recognize that by accepting another person's position, you'd both be wrong, there's something to be said for sticking to your principles and not yielding. In a recent but undated note, Hill and Knowlton, the communications firm, published a white paper explaining the difference between brand and reputation. While Huygens has made this point for years, it is nevertheless satisfying to see a convergence of concepts in the finance and risk sector with concepts in the marketing sector. Harmony is valuable.

Hill and Knowlton's phrasing:

A BRAND is the sum of perceptions, held primarily by a company’s current and potential customers or clients, about a company’s specific product, service, or line of products or services

REPUTATION is the sum of perceptions about a company’s corporate actions held by the public in the areas where the company operates.

Public, of course, means all stakeholders: customers, employees, suppliers, creditors, investors, NGOs and regulators. And while reputation is hard to measure since it represents an expectation of behavior, the financially-relevant actions it prompts in those stakeholders is a perfectly fine, transparent, objective metric.

H&K needs a little bit of help getting over the final hump, so Huygens willingly adds that reputational value can be measured by capturing the extra revenue, or lower costs, arising from stakeholder interactions as a result of reputation. That's what Consensiv measures, and why its metrics provide a useful tool for reputation management.

Research Reveals Major Flaw in Public Company Risk Disclosure

C. HUYGENS - Tuesday, September 10, 2013
Huygens is pleased to share notice of a new study on reputation risk.

Beginning in 2005, the SEC mandated firms to include a “risk factor” section in their Form 10-K (Item 1A) to discuss “the most significant factors that make the company speculative or risky.”1 This suggests that regulators believe that investors benefit from disclosures about firm risk and uncertainties. In parallel, directors and senior executives have been disclosing in the business literature the primacy of reputation as a source of market valuation. In this study, we examine the information content of the disclosure of risk to reputation and its relationship to corporate performance. We observed four different correlations with disclosure of risk to reputation among constituents of the S&P500 composite equity index. When analyzed as a homogenous group, we found no material difference between Reputation risk Disclosers and Non-Disclosers with respect to almost every equity, dividend, asset or reputation measure. However, when the groups were stratified by sector, three correlations emerged. In the Energy sector, Disclosers outperformed. In the Information Technology sector, Non-Disclosers greatly underperformed. Last, in the Consumer sector, Disclosers underperformed. We conclude that there’s little correlation between reputation risk disclosure and materiality to performance. When there is a correlation, it often contradicts presumptions that greater risks are reflected in lesser or more volatile performance (it’s not). Therefore, reputation risk disclosure in Form 10-K Item 1A is not a reliable indicator upon which investors can base buy or sell decisions.

Read the full study here.

CRM Redefined: Customer reputation management

C. HUYGENS - Friday, September 06, 2013
In some circles, conversations on the notion of reputation are undergoing lexicographic upgrades. For example, the psychological notion of expectation which is the framework Huygens prefer, is being framed in sociological terms as an implicit social contract between a company and its stakeholders. No matter. A contract comprises an implicit expectation of performance and a penalty for a breach. The conceptual model works well.

Fast forward to customer relationship management, and that concept is now undergoing a face-lift, too. The Consensiv blog calls out this story: Mike Muhney, the co-inventor of one of the customer relationship management, or CRM software programs that lets companies track the in and outflow of activities that “touch” customers, notes that only half of the companies using such tech tools gain any significant return on their investment. The problem, as he explained in an article in Wired earlier this month, is that users should think of “relationships” as the sources of “reputation.” Read more.

Recent Comments