MISSION INTANGIBLE

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

JPMorgan Chase: Saying foolish things?

C. HUYGENS - Sunday, May 12, 2013
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.




Reputation: The future of hiring

C. HUYGENS - Thursday, May 09, 2013
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

C. HUYGENS - Monday, May 06, 2013
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.

Program - 17 May 2013 - Register Now

C. HUYGENS - Friday, May 03, 2013

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.

Apple: Golden

C. HUYGENS - Wednesday, May 01, 2013
Apple Inc., rated AA-plus by Standard & Poor's Ratings Services which a notch below rival Microsoft's AAA, borrowed $17B at record low rates yesterday. Notwithstanding S&P's rating and misgivings of some equity investors, it borrowed $5.5B for 10 years at 2.415% which is comparable to Microsoft's cost last week of 2.413%. Overall, Apple sold $17B in bonds to a market that expressed an appetite for $50B of the company's notes.

Reputation is best valued through behavior. Apple is being offered credit at such low rates because the market expects to be repaid--the benefit of an excellent reputation in the credit market. "There was $52 billion worth of orders for the deal, making it one of the most hotly desired bond deals Wall Street has ever seen, said bankers at Deutsche Bank," reported the Wall Street Journal.

For a broader understanding of the relationship between expectations, stakeholder behavior, and value, read Reputation, Stock Price and You: Why the markets reward some companies and punish others. For an understanding how how measures of reputational value such as those calculated by Steel City Re can inform managerial decision making, visit Consensiv.

Consensiv 50 League Table for May 2013

C. HUYGENS - Tuesday, April 30, 2013
Consensiv, a consultancy, inaugurated today monthly publication of the Consensiv 50, the most reputable large companies in the world. The ranking is informed by Steel City Re's reputational metrics.

As Consensiv explains in their press release, "the first-ever ranking of global leadership in reputational value based on stakeholder behaviors with measurable financial consequences...provides a number of new perspectives on corporate governance."

(Links Updated 3 May 2013)

Link to press release.
Download link to Consensiv 50 report for May 2013.

Barclays: Committed

C. HUYGENS - Sunday, March 17, 2013
Cynics insist that the big banks have only an interest in reputation -- an interest that distributes risk inequitably on others. As the old fable goes:

A Pig and a Chicken are walking down the road. The Chicken says: "Hey Pig, I was thinking we should open a restaurant!" Pig replies: "Hm, maybe, what would we call it?" The Chicken responds: "How about 'ham-n-eggs'?" The Pig thinks for a moment and says: "No thanks. I'd be committed, but you'd only be involved!"

Last year, UBS tied the CEO's bonus to measures of reputation. Now, a second bank is no longer chicken. In a bigger and bolder display of commitment, the 2012 Barclays Bank Annual Report describes robust board and operational level controls designed to drive reputation risk management throughout the enterprise.

In order to strengthen the governance relating to reputation matters, we have recategorised reputation risk as a new Principal Risk and have created a Board Conduct, Reputation and Operational Risk Committee in 2013. The Barclays Reputation Council created a Bank wide Reputation Risk Control Framework and Reputation Risk Impact/Control Policy, both of which were approved by the Board. The Council has also delivered training on reputation risk to senior executives across the bank to ensure the knowledge and culture is embedded.

The Steel City Re Reputational Value Metrics suggest Barclays is realizing some of the rewards associated with transparently reporting its commitment. RVM is a non-financial indicator of reputational value. The current RVM volatility, an indicator of homogeneity of expectations of reputational value, has been dropping steadily over the past 4 weeks since Huygens last reported the metrics.  Meanwhile, the CRR, a measure of relative reputational value in rank order, shows that BCS has climbed from the 21st to 24th percentile since mid-Feb. ROE is holding steady at just above the median for the sector comprising 49 banking firms.

The data show that BCS's emphasis on reputation, backed by authentic controls, is creating value. The controls have not been tested, so those that have been converted appreciate the qualitative effort. The data also show that while the number of sceptics is dropping, BCS current RVM volatility is still above the median at the 54th percentile. To extract more value from the investment, BCS needs to turn around this very large block of sceptics with a quantitative story -- something made possible by a product like reputational value insurance, perhaps?



Barclays: Stirring the pot

C. HUYGENS - Wednesday, February 20, 2013
The path to providence for a prodigal bank was never expected to be easy. Human nature delights in the fall of the mighty; more so the meek who once suffered at their hands. We are speaking, of course, of the hands of the masters of the Universe.

William D. Cohan, the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase. He scoffs as Antony Jenkins, the chief executive officer of Barclays Plc., seeks to shred the banks old culture and restore ethics, integrity, and other critical values. Cohan wrote on Monday,

It’s tempting to trust this sweet-talking British banking executive, still in the flush of his new appointment to run the scandal-ridden institution. He is understandably anxious to distance himself and his bank from the atrocious behavior rampant at Barclays during the absolute monarchy of his predecessor, Robert Diamond.

Scoffing, as it is now abundantly clear, is a mainstream financial media concern. Last Thursday, the NYSE announced the start of a metric-based publication service tracking sentiment - a social media data analysis service. Call it a scoff meter. Barbara Gray, an analyst with Brady Capital, explains the demand in the financial sector for sentiment data this way.

Social media is creating a new form of appreciating equity called social capital and we are now starting to see an explosion in growth of the number and sophistication of social analytics tools. As these new tools turn more and more qualitative data on companies (previously ignored by investors that just focused on the numbers) into quantitative data, I believe social capital will become even more of a predictive variable for determining stock price performance.

Indeed, the scoff meter is a 17 year old idea whose time has come. As described in Reputation, Stock Price and You, as far back as 1996, Cap Gemini Ernst & Young, a global accountancy, established that non-financial performance plays a critical role in how public companies are valued, accounting for as much as 35% of institutional investors’ valuation. In 2005, PwC, another global accountancy, reported controlled experiments showing that extra-financial data and intangible asset value calculations swayed 40% of analysts to change their target valuations of public companies. That same year, Thomson Extel, the publishing group, reported that 6% of buy-side brokerages devoted material resources to extra-financial data to determine intangible asset value. A year later, that figure was updated to 32% of buy-side brokerages.

The Society, in cooperation with Steel City Re, has been publishing reputational value metrics for several years. S&P/DowJones Indexes publishes an equity index (Ticker: REPUVAR)  informed by the same measures. These measures capture the expected economic consequences of stakeholder actions influenced by, among other things, the same data streams tracked by the scoff meters. In fact, the volatility of the RVM metric, a non-financial measure of reputational value, is a measure of stakeholder expectation alignment -- truly, a scoff meter. And CRR, a measure of reputational value premium, is an indicator of the relative value of those expectations among all stakeholders in terms of expected economic impact. When RVM volatilty is high, CRR naturally suffers.

Below, Barclays' most recent data from Steel City Re in both Investor Relations-friendly and traditional Risk Manager-centered actuarial formats. Looking first at the IR-friendly form of reputational value reporting, the data show that the measures of expectation alignment - the degree to which stakeholders believe what is being said about Barclays and plan to act accordingly, is around the 8th percentile relative to the other 49 firms in the financial services sector. The measure captures the expected economic impact of Cohan's scoffing, as shown on the same Peer Standing chart where the reputational value premium is around the 21st percentile. Two measures, both in the black box, indicating (optimistically) great upside potential.

Below, in the bottom left, a comparison of current alignment versus historic alignment. The measure appears to be decreasing, which could be interpreted to mean stakeholders are trusting the messaging less, or more aptly here, with the new messaging, stakeholders aren't accepting it...reference Cohan again.

Turning to more traditional economic measures, the Beta charts at right show that Barclays' economic returns have a Beta of 1.5 x both the group median and the S&P500; Barclays' reputational value metrics, on the other hand, have a Beta of 0.0 relative to the group median and the market measure of uncertainty -- the VIX. Barclays, from a reputational value perspective, is now in a league of its own.



The story is no different looking at the actuarial data below although time series data provide more nuanced insight. Barclays wild ride goes back to September 2012 and a steady rise in economic value not yet matched by a rise in CRR suggesting equity investors have a feeling for something others, like Cohan, are fighting tooth, nail, and blog.

Walmart: Awful quarter

C. HUYGENS - Monday, February 18, 2013
Three months ago, Huygens reported that the reputation value metrics calculated by Steel City Re suggested that Walmart was on course for a reputational value crisis. It was a message easy to ignore, as Walmart's travails have been covered extensively by Huygens among many others and stumbling consequent to a host of reputational value crises has been long expected. It had to come eventually, although Huygens in December boldly predicted -- there's nothing all that bod about interpreting reputational value metrics, actually -- it would be evident by Spring 2013.

Hours before Bloomberg News leaked emails from Wal-Mart executives calling February sales a "total disaster," off to the worst start in seven years, the updated reputational value metrics showed yet another spike in RVM volatility. RVM, as described in the book Reputation, Stock Price and You,  is a non-financial measure of reputational value, and its volatility is an indicator of stakeholder expectation alignment with messaging. High RVM volatility values suggest poor alignment. Somethings 'a comin'.

Compared to Target, a much smaller company, Walmart's RVM volatility is leaping of the vital sign charts to the 71st percentile among the 15 companies in the Discount Store peer group. The company's CRR, a measure of reputational value  premium, is in the 93rd percentile. This measure should be a source of good cheer but for the corresponding RVM volatility and the fact that Walmart's ROE is comparable to Target's at the 77th and 69th percentiles, respectively. This mix of measures of reputational value make for an unstable picture as the four week rise in Current RVM Volatility suggests. Worst yet for Walmart, the reputational value Forecast Stability metric, the fifth of the five vital signs, suggests that this pattern of volatility can be expected to remain, well, stable.

Twenty hours after this chart was generated, the markets closed for the extended weekend. Walmart was down 2.18% for the day; Target was reflexively down 2.14%, and the S&P500 was down only 0.1%. Equity investors are event driven. With more thought, expect Target to rebound, and Walmart to continue to sink.

Blackberry: Bye bye

C. HUYGENS - Friday, February 15, 2013
Reputational value is the benefit of stakeholder confidence in a company's future narrative. With a nod to comedian Jeff Foxworthy, you may be having a reputational value crisis...if your former CEO dumps all of his shares at rock bottom prices.

In a regulatory filing yesterday, former Blackberry Co-Chief Executive Officer Jim Balsillie said that by the end of last year he had sold his entire stake in the company. Balsillie, who stepped down as CEO a year ago, owned about 26.8 million shares, or a roughly 5 percent stake in the company, as of Dec. 31, 2011.

Recent Comments


SuMoTuWeThFrSa
   1234
567891011
12131415161718
19202122232425
262728293031 
 

Subjects

Archive