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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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%.



Reputation is the (Academic) Word

C. HUYGENS - Tuesday, August 13, 2013
Events manifest in clusters. Recently, News Corp went through a painful transformation as the final stage of a reputation crisis centered around senior executive Rebekah Brooks and "over-the-top" phone hacking. Rewinding, it turns out that around the time that Rebekah Mary Wade Kemp Brooks was evolving her campaign to name and shame alleged pedophiles through News of the World across the pond -- the noble origins to the practice that got out of control -- a pedophile was sowing the seeds of a reputational crisis at the Pennsylvania State University.

When the scandal became public in 2011, it unleashed a cathartic conversation on a difficult subject that had touched surprisingly many people first-hand. The deeper questions were: How does an institutional culture arise to condone, or at least ignore, something that, individually, every member knows is wrong?31 How does one persist as a “perfect serial pedophile,” as the prosecution described Jerry Sandusky, the former Pennsylvania State University assistant football coach now convicted of molesting young boys.

In a blog note posted today, Jonathan Salem Baskin, better known to Society followers as the moderator of the Mission Intangible Monthly Briefings, reflects on reputation in academia. Read more.

Reputation: It's about behavior, stupid!

C. HUYGENS - Thursday, August 08, 2013
As legend goes, the accidental marriage of chocolate and peanut butter produced a diversity of wonderful confectionary offspring. Each, a virtue on its own, produced in combination a superior experience.

The same can not be said about the marriage of branding and reputation. Branding, and the research that drives its understanding, is about awareness, likeabilty, emotional connection, and the elusive brand promise. It is an artifact of an overt communication campaign.

Reputation is about rational expectations. It is a psychological construct formed through a diversity of observations ranging from products of overt communications to directly observed behaviors, rumors, and innuendos.

Each a valid business construct that has implications for goals, resources and strategy, in combination they yield indeterminate goals, wasted resources, and unintelligible strategy that leaves nobody happy - not even Miley Cyrus. Read More.

Preposterous Reputation Management

C. HUYGENS - Monday, August 05, 2013
Huygens is on a rant. "You're doing it wrong!" "Backwards!" "You're treating the symptoms, not the cause!" It's the sort of behavior that can lead a man to drink.

Having practiced medicine for many years, Huygens knows that symptomatic treatment is, by definition any medical therapy of a disease that only affects its symptoms, not its cause. It is usually aimed at reducing the signs and symptoms for the comfort and well-being of the patient. In corporate speak, those who practice the art of treating symptoms -- say, with online reputation management -- feel better, even if the act creates no enterprise level benefits.

As every physician and nurse knows, symptomatic treatment is not exempt of adverse effects. Corporate examples -- again, say with online reputation management -- include mismanaging expectations, misallocating resources, and creating the appearance of willful blindness -- all fabulous fodder for litigants.

Consensiv's Managing Director, Jonathan Salem Baskin, known to Society followers as the effervescent moderator for the Mission Intangible Monthly Briefings, explains. Read his full discussion here.

Microsoft: Xbox Marks the Spot

C. HUYGENS - Friday, August 02, 2013
Being an iconoclast, Huygens readily welcomes into the fold any person, place or thing that affirms his belief that reputation is a measurable attribute based on behavior. For this reason, Huygens is delighted to introduce readers of this blog to his newest friend, Xbox program manager Michael Dunn.

Xbox just introduced a new policy -- a reputation ranking -- that will help stakeholders use the product and interact in its virtual community. It's all about risk management. "Our new reputation model helps expose people that aren’t fun to be around and creates real consequences for trouble-makers that harass our good players," explains Dunn. Read More.

Reputation Risk: Seeking the 92% solution

C. HUYGENS - Thursday, July 25, 2013
Cognoscenti are wagering that the great wave of demand for reputation risk solutions can not be far off. The leading indicators are all there. Most evident is the inflationary spiral of the size of the alleged community of interest.

In 2009, less than 10 percent of the constituent members of the S&P500 disclosed reputation risk. That was then. In 2013, about 66 percent are disclosing the risk in section 1A of their 10Ks; 73 percent of corporate directors indicate reputation is their #1 concern, and just in, ACE, the insurer, reports that 92 percent of companies believe that reputational risk is the most challenging category of risk to manage.

Also, from the report:

  • 77 percent of companies find it difficult to quantify the financial impact of reputational risk on their business, making it harder to measure than traditional, more tangible risks.
  • 68 percent of companies believe information and advice about how to manage reputational risk is hard to find, compounding the sense of uncertainty and confusion about how best to manage it.
  • 66 percent of companies feel inadequately covered for reputational risk from an insurance perspective.
  • 56 percent of companies say social media has greatly exacerbated the potential for reputational risk to affect their business.
Such demand can not exist for long without supply flooding the market. Moreover, it is clear that any viable solution will require objective measures of financial impact not unlike what Huygens shares on this blog, quantitative reputation risk controls, reputation risk transfer and an intellectually robust framework for managing the myriad issues.

Financial Institutions: Expecting rapacious behavior

C. HUYGENS - Monday, July 22, 2013
"It’s far too easy to decry what the financial firms do wrong," writes Mission Intangible Monthly Briefing moderator and Forbes columnist Jonathan Salem Baskin. "After all, they’re rapacious and unrepentant capitalists who seem too willing to follow the cruel logic of their mathematical equations despite the feelings of their critics."

If you agree, and if the above description comes as no surprise, then banks are meeting your expectations. You're not alone, explains, Baskin, and that's why they're making money hand over fist. Read more in Forbes.

Baskin will be moderating the Mission Intangible Monthly Briefing this coming Friday, 26 July, where he will take a sweeping view of the many intangible assets underpinning reputation.

Joining in the conversation will be Dale Furtwengler, a consultant's consultant specializing in bringing clarity to the value in intangible asset management; and Mary Adams, author, consultant, and Smarter Companies thought leader, and formerly a member of the Society's Reputation Leadership Council.

Three is no cost to register and listen to the broadcast. Register here.

Welcome Management Accountants

C. HUYGENS - Sunday, July 21, 2013
"These days," write the authors, "bad news spreads faster than ever. Management accountants can help companies prepare to inoculate their hard-earned reputations against damage on social media and repair the harm when it occurs. Here is the expert's prescription."

Come again? "Did you say management accountants?" One can almost hear the other executives chuckling around the water cooler -- or virtual analog, such as Facebook. "Accountants managing reputation is an oxymoron."

The smart money is on the accountants. As described on page 12 of the summer 2013 issue of Certified Global Management Accounting (CGMA) magazine, reputation risk is a core financial issue impacting every line of the P&L statement. "A good reputation can increase margins and reduce borrowing costs, inventory lead time, head-hunting costs, internal litigation costs, regulatory fines and supplier costs." Done properly, managing reputation risk presents a significant opportunity for the company, its directors and officers.

CFOs and their management accounting teams see the writing on the wall. It is alphanumeric.

The Society operates under a big tent, and we are delighted to welcome management accountants to the fold. In their honor, the Mission Intangible Monthly Briefing this coming Friday, 26 July, will take a sweeping view of the many intangible assets underpinning reputation.

Joining in the conversation will be Dale Furtwengler, a consultant's consultant specializing in bringing clarity to the value in intangible asset management; and Mary Adams, author, consultant, and Smarter Companies thought leader, and formerly a member of the Society's Reputation Leadership Council. Jonathan Salem Baskin, author of Tell the Truth, moderates.

Three is no cost to register and listen to the broadcast. Register here.

Liquidity: You're at risk for doing it wrong

C. HUYGENS - Friday, July 19, 2013
Since the Pittsburgh Conference of the G20 in 2009, where Huygens used the skirmishes with anarchists to educate his daughter on the ideals of civil disobedience and the realities of tear gas, there’s been a coordinated effort to mitigate the risk of another global liquidity crisis. The consensus strategy among world governments is capital adequacy.

“Adequacy” is a fuzzy concept, but the intent is that institutions would hold capital sufficient to meet the expectations of stakeholders for unfettered access to funds on demand; i.e., liquidity. “Expectations” is also a fuzzy concept, but well appreciated by followers of this blog. The meaning here is that as long as stakeholders expect adequate capital to meet demand, there will not be a panic-driven run on financial institutions.

The word used in BaFin’s (Germany) regulations for this expectation of adequate capital is -- wait for it -- “reputation.” Similarly, this expectation of adequate capital is what Alan Greenspan meant when he said “In a market based on trust, reputation has enormous value.” Liquidity risk is therefore linked to reputation risk when the latter is defined as “the threat to enterprise value when myriad stakeholders perceive that corporate behavior violates their expectations."

Reputation risk is a governance and control problem, and it can be exacerbated through adverse publicity, but it is first and foremost not a PR issue. The legislative problem, and the source for "doing it wrong," is that the word “reputation” has a lay meaning -- likeability -- which is how at least some regulators are interpreting the word. Rereading the paragraphs above and replacing the notion of “expectation for capital adequacy” with “corporate likeability,” leads to a diversity of wrong activities.

The first group of wrong activities comprise restrictions on business counterparties -- not on the basis of creditworthiness, but rather on the basis of likeability. This is flat-out goofy, as discussed in American Banker and partially in Forbes. The second group of wrong activities comprise fostering business controls over the wrong business processes -- not on the controls that manage stakeholder expectations of capital adequacy, but rather over drivers of likeability. This will direct corporate resources in the wrong direction, and do nothing for addressing the core risk of capital adequacy, as discussed both in Forbes and an earlier Intangible Asset Finance Society blog note.

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