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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JPMorgan: Bowl Game Post-Mortem

C. HUYGENS - Wednesday, May 22, 2013
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

C. HUYGENS - Tuesday, May 21, 2013
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

C. HUYGENS - Monday, May 20, 2013
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 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?




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