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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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.

Labor Day Musings on Reputation

C. HUYGENS - Monday, September 02, 2013
Huygens has friends, and when he elects not to work on the day set aside to not work in honor of working, he takes pride in knowing that others are celebrating the day working in honor of those who are not working in their honor. Under such circumstances, it is only fitting and proper that their labor be further honored with the following links:

From Consensiv, and IAFS MIMB moderator Jonathan Salem Baskin, Labor’s Reputational Value.

From Reputation Xchange, and authority Leslie Gaines-Ross, State-ly Reputations.

Blackberry: The end is nigh

C. HUYGENS - Friday, August 30, 2013
Earlier this month, Huygens doubled down on his belief that Blackberry was doomed. The death knell is ringing, and it sounds like this. From Bloomberg, Aug 30, 2013, "Morgan Stanley (MS) is holding off on upgrading its employees to BlackBerry Ltd. (BB)’s newest smartphones and operating system because of concerns that the Canadian company may not back its platform long-term, according to two people with knowledge of the bank’s plans."

Blackberry, nee Research in Motion, is in the last stages of a full-blown reputational crisis. Such a crisis, as Huygens frequently declares, is the realization of reputation risk which is defined as the threat to enterprise value when myriad stakeholders perceive that corporate behavior violates their expectations. Morgan Stanley would expect Blackberry to support its platform long-term; it is now expecting that the company will be unable to do so.

As to last stages, as Huygens is formerly a deputy coroner of Los Angeles county, the situation is ad oculos.

Reputation: An operational risk perspective

C. HUYGENS - Wednesday, August 28, 2013
When Dutch accountant Marinus de Pooter wrote about managing the risks of failing to meet business goals and stakeholder expectations in the April edition of Internal Auditor, he never used the word reputation…but articulated 10 ways to control and improve it. Read more.

Reputation: Expectations need to be managed

C. HUYGENS - Sunday, August 25, 2013
In an essay in Forbes magazine, Mission Intangible Monthly Briefing moderator Jonathan Salem Baskin, Managing Director of Consensiv, a provider of reputation controls, explains why managing expectations is an important element of reputation value creation and protection. Read Batman, Ballmer, And The Dangers Of Expectations.

Social Media: Building brands but reflecting reputations

C. HUYGENS - Thursday, August 22, 2013
Many experts conflate definitions of “reputation” with those of “branding,” which usually leads to claims that communications strategies and tools are the mechanisms for creating and managing reputational value. They've got it wrong.

Brands are mental constructs of promises and associations among consumers, reputations are objective measures of ongoing reality and future expectations among a diverse collection of company stakeholders. The tools for controlling corporate reputations and risk are the standard tools of operational control coupled with the tools of stakeholder expectation management.

Social media can help to the extent that brand promises are among the influencers of stakeholder expectations. Read more here.

Blackberry: No more children's games

C. HUYGENS - Wednesday, August 14, 2013
From time to time, Huygens has to turn his back on his alma mater, the great University of the great Chicago, and acknowledge that markets can be profoundly inefficient. Equity prices are often driven by emotion; reputational value metrics are usually driven by rational expectations of a diversity of stakeholders that by virtue of their heterogeneity, dampen the emotional noise.

Equity investor emotion manifests in frankly goofy stock prices. For example, writes Value Walk, “Netflix has had a hell of a run in 2013, up over 170% year-to-date on big earnings results and short squeezes...But that run for Netflix, Inc. (NASDAQ:NFLX) stock might end in tears, and soon.” Driving a stock price to 329 times earnings suggests that investors are acting on sentiment more than fundamentals.

Turning to Blackberry (BBRY), Huygens has long advocated laying out the cutlery. The reputational value metrics were unambiguous two years ago. Well BBRY had another stock burst after it renamed itself (adult version of peek-a-boo) but that's over now and directors are seriously talking like adults about selling off the assets. Here are the most recent Steel City Re reputational value metrics.

The current tally: current reputational value (RVM) volatility in the top quintile (88th percentile measuring in at a Consensus Trend above 11% - change is coming. Reputational ranking, the Reputation Premium, at the 19th percentile - low expectations (finally) after an irrationally optimistic run in the high 60's that fueled silly economic returns approaching 150%.




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