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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VW’s Reputation Crisis Likely to End Badly

C. HUYGENS - Monday, December 14, 2015
Generally, stakeholders will ultimately forgive point failures like an errant supplier for Toyota, or even a London Whale for JPMorgan Chase. They will be less forgiving if the failure appears to be evidence of a systemic failure engineered by directors and officers. Until culpability is assessed, however, directors and officers by default will be pummeled in the court of public opinion.

To put hard numbers around the volatility associated with presumed culpability and ultimate assignment, read more at Risk & Insurance and see the chart below. To understand how directors who are unjustly being accused of ineptitude can protect themselves, click here.

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.

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.

You got it, Toyota

Nir Kossovsky - Wednesday, February 17, 2010
Headaches. In case you've been unplugged this past year, Toyota Motors Corp (NYSE:TM) is experiencing an intangible asset value meltdown. Highly valued behaviors that became watchwords for Japanese manufacturers—ethics, quality, safety—appear to have recently fallen out of favor at this iconic firm.

It's been a few weeks since we looked at the automobile sector, and we will give this topical sector a robust treatment in our regular corporate reputation series in IAM Magazine issue 41. For now, a teaser.

At the of end of Q1 2009, the Steel City Re Corporate Reputation Index showed a precipitous decline in Toyota’s reputation relative to a sample of large publicly traded firms on the US exchanges. Honda Motors (NYSE:HMC), a Japanese-headquartered competitor, is one of the reputational beneficiaries. Its all relative. Shown in the charts below, the Reputation Index metric for TM drops from the 80th percentile to the single digits and generally holds there for the balance of 2009. HMC, on the upswing from early 2009, peaks at the 90th percentile before ending the year 30 percentage points net up at around the 50th percentile.

As for economic returns over this same period, TM rewarded its shareholders with a 45% ROE (S&P was up ~21%). HMC rewarded its shareholders with an 80% ROE.


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.

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