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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Reputation Now Key at Consumer Level

C. HUYGENS - Thursday, August 24, 2017
Reputation risk is a material threat to value especially in financial services, automotive and healthcare.

"CorpSumers feel so strongly about brand reputation, that over half (51%) will continue buying a product that has disappointed them because they believe in the company or share its values."

Read more in Holmes Report.

Great Expectations: Twitter v. Tesla

C. HUYGENS - Wednesday, November 20, 2013
Almost all investment literature warns you that past performance is no guarantee of future results. For investors of Twitter (TWTR) and Tesla (TSLA), this warning is a statement of aspiration.

As Jonathan Salem Baskin explains in Forbes, "Tesla didn’t make enough money last quarter, and reports of recent accidents appear to question the safety of its cars and factory, so its stock is down. Twitter launched an IPO, yet has no idea how to make money and, though a wash of put warrants in Europe appear to bet on its inability to figure it out anytime soon, expectations are high. "

In a plot twist, Baskin suggests that the social media company is following the conventional line, while the automotive company is actually contrary to type. Last, in a conclusion that Huygens' readers will appreciate, Baskin notes that "Tesla doesn’t just build cars, and Twitter doesn’t solely run a social platform. Both brands are in the expectations business."

The Consensiv reputation metrics, powered by Steel City Re's measures of reputational value, reflect stakeholder expectations. Of the 136 firms in its sector, Internet/Software Services, Twitter draws at its birth a first quartile Reputation Premium. Its stakeholders are irrationally confident, although it is too early to determine with the Consensus Trend metric that is an exponentially weighted 90-day moving average. The same holds for the Consensus Benchmark which is based on a one-year average standard deviation. Yes, it's too early to judge reputational healthy, but this is what things look like at the beginning.

Contrast these reputational metrics with Tesla, which has been building cars for years and went public three years ago. First, a similar Reputational Premium, but only recently, even though it is relative to the 38 firms in the Motor Vehicles sector. But over the past month, such confusion! Consensus Trend spikes in excess of 7% are considered momentous; Tesla spiked at nearly 700% and is now only down to 200%. What gives? New models, new problems, new CEO histrionics. The Consensus Benchmark is greater than 1000%!

To appreciate the color behind the numbers, read more at Forbes.






For more background on the Consensiv reputation controls, click here. To view the November 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here.

GM: Brand v. Reputation, Impala Edition

C. HUYGENS - Tuesday, November 12, 2013
A brand is a promise; a reputation is the promise expected, after discounting. Consider Chevy's Impala. The brand:

Impala has always been a flagship for Chevrolet. But a leader should never rest on the laurels of its past — especially when it wears the Chevy bowtie. So, when it came time to reinvent one of the brand’s most iconic nameplates, Chevy designers and engineers reached far into the future and shaped it in the present.

Are laurels of the past sufficiently solid to support such a promise? Apparently not, according to a review of the car by the Globe and Mail's Ted Laturnus. The reputation:

"I don’t trust this car. Or, more to the point, I don’t trust those that have come before it. Traditionally, the Impala has been one of the more problematic models in GM’s stable…"

Read more.

Brand reflects the owner's aspirations; reputation reflects the expectations of stakeholders; and reputational value is the economic consequence of decisions made by myriad stakeholders that impact every line item of a company's P&L. Q.E.D.

BP vs. TM: A tale of two reputations

Nir Kossovsky - Tuesday, June 01, 2010
When it comes to headline risk, loss of value surprises no one. But this Society has long advocated that among the benefits arising from superior intangible asset financial management is reputation resilience. In fact, it is one of the central themes in the Society’s recent book, Mission:Intangible. Managing risk and reputation to create enterprise value.

Reputation resilience is the benefit arising from having a company pre-position stores of goodwill on which it can draw when the headline crisis strikes. It means stakeholders will tend to feel a company’s pain and empathize rather than holding a company culpable.

Consider the remarkable reputational comeback of Toyota Motors (NYSE:TM). As shown in the first of two charts of the Steel City Re Corporate Reputation Index, Toyota’s ranking has zoomed back to the top of the automotive (motor vehicles) sector globally among its 35 peers from a start one year ago of 0.62. While it is currently underperforming the median of its 18peers in the automotive sector by 23% due to costs associated with its recent issues (and the subsequent pile on of litigators, regulators and mommy bloggers), its future prospects are good. Stakeholders are giving the company the benefit of the doubt in terms of pricing power, labor costs, credit costs and earnings multiples. Toyota built the capacity for reputational resilience over years of generally doing the right thing on six key fronts: ethics, innovation, quality, safety, sustainability, and security.



Now contrast Toyota with what we expect will be a long a steady reputation loss at BP (NYSE:BP). BP’s ranking has been sliding for the past year having started at the 87th percentile and finishing most recently at the 56th. BP, a firm that is no stranger to reputation issues, is currently underperforming its 51 peers in the integrated oil sector by 14% and, notwithstanding the bright colors of the chart, the future is not rosy.


Heads Up

1. Risk, governance, and compliance are the topics for this Friday’s Mission Intangible Monthly Briefing at 12h00 EDT. The program, titled Driving risk and reputation into the C-suite, is complimentary, and a sample download of a recent program is available to further pique your interest. For more information and registration, click here.

2. The book, Mission: Intangible is available from the Society and from other major online book retailers. The book is available in hardcover, softback and e-book versions. Society members benefit from a material discount if purchasing the book from the Society.

3. The Society will release next week regular data on the first-ever reputation composite index. Provided by Steel City Re, the data reportedly show that firms actively engaged in the process of reputation enhancement tend to outperform their peers. Spoiler alert: Since January 2005, the Steel City Re Corporate Reputation Composite Index of reputation rising stars has returned 18% while the S&P500 has lost 3%.

And of course, we extend to you an open invitation to join the Society as a full member; and to Link-In to the Society's regular chatter availabe conveniently through the Linked-In website and IAFS group membership. Join us.

Ford: Rocketing reputation

Nir Kossovsky - Thursday, April 08, 2010
The results are in and jaws are agape. Heroes are tarnished, the low are elevated, and we have a new crop of villains to talk about. Of course, were referring to the Harris Reputation Quotient.

The Harris organization released their 2009 rankings earlier this week. Based on interviews and other processes in the first weeks of 2010, this is one of the most widely watched reputation metrics.

One surprise is that Berkshire Hathaway (NYSE:BRK.A) took the top spot from frequent top scorer Johnson & Johnson (NYSE:JNJ). Of course, the latter had a reputation run in with both FDA and the US Justice Department earlier this year that appears to have cost them reputationally.

A true bright spot in the study belongs to Ford (NYSE:F), whose RQ score increased by 11.28 points from 2008, the largest single year improvement in the past nine years. Readers of the Mission:Intangible blog saw this coming with our post in April 2009. The major turning point for Ford was 30 October 2009. Below we paste the Steel City Re Corporate Reputation Index rankings for Ford relative to its 9 automotive peers. Compared with the fortunes of GM, Chrysler and Toyota (NYSE:TM), Ford is flying. Its rankings climbed from the 33rd to the 87th percentile.



But even compared with the reputation metrics of the largest public companies with values $50B and greater shown in the chart below, Ford is clearly rocketing. Among these 85 peers, Ford climbed from the 2nd percentile to the 29th percentile. Not to take a shine off its product, but corporate reputation in this instance clearly benefitted from a period ROE of some 230%. Alas, this is all so 2009.



Which leads us to assert, with restrained hubris, that the Harris Reputation Quotient is a lagging indicator of reputation relative to the Steel City Re Corporate Reputation Index. Really.

Whistling by the graveyard

Nir Kossovsky - Monday, March 01, 2010
It is significant that there is little public gloating from other auto manufacturers as Toyota Motors’ (NYSE:TM) leadership globally offers mea culpas. Although it is Toyota’s reputation that is melting under the heat of headline risk, competitors are only too aware that the next tolling of the bell could be for them.

This is why. While the damaged intangible assets are three of the big six: ethics, safety, and quality, the underlying problem is the global supply chain. According to Bob Rittereiser, CEO of Zhi Verden, a supply chain systems and information management company, “the stark reality today is that the global supply chain is a business operating system with global reach, thousands of participants, established practices, government requirements, blazed paths, known bottlenecks and many known risks, yet no one is in charge!” Or, said differently by John Hurrell, Chief Executive, Association of Insurance and Risk Managers, “The complexity of supply chains puts your reputation in the hands of the lowest common denominator.”

Reputation drives intangible asset value. As reported in Mission: Intangible -- Managing Risk and Reputation to Create Enterprise Value (IAFS with Trafford Press, March 2010), research shows that superior reputations pay off with (i) pricing power , (ii) lower operating costs, (iii) greater earnings multiples, (iv) lower beta (i.e., stock price volatility) and (v) lower credit costs. And when reputation is damaged, these benefits are lost. All told, we estimate the reputational impact, so far, to be a $2 billion cost to Toyota's earnings and a $25 billion cost to its market capitalization.

Previously we shared Toyota's reputation metrics from the Steel City Re Corporate Reputation Index. We take time out from our membership drive to offer this financial breakdown shown at left.

Legend. Income Statement Impact (values in $‘000). Lost sales and a 3% loss in pricing power will reduce Toyota’s gross profit by around $900 million. Costs associated with the worldwide recalls, litigation, insurance subrogation, and regulatory compliance will cost at least another $500 million. The lower credit ratings will increase borrowing costs by at least another $71 million, and non-cash depreciation expenses associated with a 3% write down of Toyota’s automobile asset base will reduce earnings by another $540 million. Data source: Steel City Re.

Join Us

If the above intrigues you, frightens you, or challenges you to learn more, look no further. The Intangible Asset Finance Society wants to be your business resource. Join us and be part of an organization that provides a wealth of educational materials to further your executive career.

Innovation: Hot Policy and Practice Issues

Be sure, by the way, to register for a complimentary seat at the 5 March Mission:Intangible Monthly Briefing, held by phone at 12h00, EST. It's an innovation smack down. Athena Alliance President and intangible asset policy expert Kenan Jarboe goes head to head with Steel City Re's Judith Giordan, Managing Director of IA Finance and former senior technology executive with Pepsi, Henkel, International Flavors & Fragrances, and Polaroid. Yes, as always, registration is complimentary and slides are already posted on the website events page.

Diversity for dollars - change at Chrysler

Nir Kossovsky - Friday, November 06, 2009
Earlier today, the Society’s Mission:Intangible® Monthly Briefing by Dr. Judy Giordan of Steel City Re spoke to the demonstrated link between managerial and directorial diversity and corporate enterprise value. Thanks to her data-rich presentation, we better appreciate that diversity under critical conditions can create value through the wisdom of crowds. Apparently, so does Chrysler.

Earlier this week, Chrysler Group LLC Chief Executive Sergio Marchionne laid out plans to revive the struggling Auburn Hills automaker. His plans -- replenishing its lineup with high-quality and attractive models to more than double sales within five years and start generating profit in 2011 – were derided as generic by many analysts.

But not dismissed. This is why. Marchionne and his management team, a mix of executives brought over from Italy and promising managers at Chrysler whom he promoted, have been working in secret on the plan since Chrysler emerged from bankruptcy in June. This team of diverse individuals is differentiating itself from generic auto strategy teams in other ways. David Cole, chairman of the Center for Automotive Research in Ann Arbor, notes "the youth of the team kind of brings energy and enthusiasm to the process."

Score one for subtly signaling the intangible asset value of diversity.

There’s more. Chrysler is working hard to improve quality. "We're not in denial in relation to the public perception of quality at Chrysler," said quality chief Doug Betts, who worked previously at Toyota Motor Corp. and Nissan Motor Co. Chrysler now has 1,500 people addressing its poor quality, focusing on manufacturing.

There are skeptics. "Their quality reputation is dismal right now, and you don't change that in a couple of years," said Jack Nerad of Kelley Blue Book.

Well, maybe not usually. But reputation can be restored quickly if stakeholders find compelling reasons to expect change. After all, reputation is an expectation of future behavior.  This is why. Reputation grows out of the totality of information stakeholders receive about a company — information that creates the cumulative impression of how the company manages all its business processes. These are the business processes that create an ethical work environment, drive innovation, assure quality, uphold safety, promote sustainability, and provide security. Along with their embodiment in brands, trademarks, and patents, these processes are the intangible assets which have become the primary determinants of corporate success or failure today.

Industry experts were impressed by Chrysler’s forthright emphasis on the quality issue, just as they were impressed by the composition of the management team. The Company is signaling unambiguously a commitment to new and improved processes – commitments that are evidently reshaping reputation at this very moment.

Government motors, not! (and we'll prove it)

Nir Kossovsky - Friday, October 09, 2009
Ninety days ago today, on 10 July, General Motors (fomerly NYSE:GM) emerged from bankruptcy. At an auto show this past weekend, Robert Lutz, the ‘new”  General Motors vice chairman of marketing and communications, said, “The world does not realize how great today’s GM products are." Lutz said GM is not afraid to back up those comments. He is heading the team that has started a new “may the best car win” ad campaign, “Our products are equal or superior to the competitors.”

While some members of our Society may know much about cars, as a group we share common interest in the concepts of quality and reputation, and we recognize that communications are an integral step in the process by which stakeholders form impressions that culminate in a company's reputation. In view of Bob Lutz's challenge, we thought it would be interesting to baseline business sentiment in the media covering the Automotive sector. As before, we use use the Financial Times' Newssift engine for the sentiment analysis.

We searched for articles in the business press covering both reputation and one of these five automobile companies: General Motors (GM), Ford (NYSE:F), Toyota (NYSE:TM), Honda (NYSE:HMC), and Daimler (NYSE:DAI). We broke down the data into the 90 days prior to GM's emergence from bankruptcy, and the 90 days following, and using the Newssift engine, sorted articles by sentiment: positive, neutral, or negative. Here are the results.

With respect to business press articles that had a positive angle, GM and Daimler showed little change. Positive articles comprised about 1/3 and 1/2 of the news stories, respectively. Positive articles about Ford and Toyota increased from about 1/3 to nearly 1/2. Positive articles about Honda dropped from nearly 1/2 to less than 1/4, although the total number of articles about Honda in each case, 25, is small compared to the total of 1139 articles analyzed.



With respect to business press articles that had a negative angle, GM and Daimler again showed little change at around 20% and 11% respectively. Negative articles about Ford dropped from 25% to 13%; they rose for Toyota from 13% to 20%. At Honda, they remained the same at 4% which represented only one article for each period. For those of you keeping score in the reputation sweepstakes, the current winner following GM's emergence from bankruptcy is Ford.

 

Turning now to the economic returns over the 180-day period, looking at the chart adapted from BigCharts.com, so far Ford is leading with an ROE of about 70% followed by Daimler at 40%. The S&P500 is up about 20%. As they say in the business, the race is on. And as Bob Lutz says, may the best car company win. Stay tuned.

Fast lane

Nir Kossovsky - Thursday, September 17, 2009
As he made his way here to Pittsburgh, home of the Intangible Asset Finance Society, to address a gathering of union leaders on Tuesday, US President Obama stopped by a General Motors plant in Ohio, where he said the government’s intervention in the automobile industry “may not have been popular,” but helped jumpstart the struggling sector. Let’s take a closer look at the sector from the Society’s perspective.

Let's first look at the reputation metrics from the Steel City Re IA (Corporate Reputation) Index? from 22 April when we last looked at this sector. The Index, which correlates with reputation surveys such as those published by Forbes, Fortune, and Harris Interactive, captures the financial implications of stakeholder behaviors and expectations of stakeholder behaviors as determined by corporate reputation. The Index is a good leading indicator of financial performance and returns on equity.

At that time, Ford (NYSE:F) showed a rising IA index and decreasing EWMA IA Index volatility with a final log magnitude of 2 while GM (NYSE:GM) showed opposite directional movements and a final volatility log magnitude of 3. From these data, we projected great financial results for the former, and ongoing dismal financial results for the latter.  Honda (NYSE:HMC) was our highest ranked automotive firm on 22 April.

Let’s see how those financial projections panned out as demonstrated in these graphs from BigCharts.com.



Since April, Ford has returned nearly 100% on equity; GM has lost nearly 65%, and Honda (which had returned 45% for the year until 22 April) still had some firepower left and continued to move upwards, but underperformed the S&P500 for this period.



If we take the long view of a 2-year return, Honda just barely beats Ford but is in negative territory; both outshine the S&P500 which is about 30% off from the 2007 peak, and GM is, well, "underperforming."

Let's wrap this up with an homage to reputation management. Kudos to Ford for demonstrating the power of reputation mangement, and its ability to create value on the basis of expectations of further great things to come. This type of financial result is exactly what the Society seeks to promote. And kudos to Honda for demonstrating the power of a superior reputation to forge resilience. This type of financial resilience is exactly what the Society hopes will motivate companies to exercise best practices in the management of their intangible assets.

A tale of two chassis

Nir Kossovsky - Wednesday, April 22, 2009
Over the past year, the monolithic big three US auto companies have resolved into their individual identities revealing, a rising Ford Motor Company (NYSE:F) and a sinking General Motors Corporation (NYSE:GM). Among the 11 companies that comprise the Automobiles sector, Ford has outperformed its peers by 6.23% while GM has underperformed by 44.9%.

Looking at the reputation metrics from the Steel City Re Intangible Asset Finance (corporate reputation) Index below, Ford shows a rising IA index and decreasing EWMA IA Index volatility with a final log magnitude of 2 while GM shows opposite directional movements and a final volatility log magnitude of 3. Our question to you - what business processes do you think are the most important drivers of corporate reputation in this sector: safety, innovation, quality, sustainability, ethics or other?  We look forward to hearing from you on this blog (post a note) or email the Society at secretariat@iafinance.org.

By the way, in case you were wondering, the number 1 ranked firm in this sector as of 17 April is Honda Motor Company Ltd (NYSE:HMC) with a return on equity this past year of 45%.




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