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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St Joe: Bedeviled

C. HUYGENS - Thursday, July 07, 2011
Advisen, the insurance industry newsletter, headlined the story this way. St. Joe Getting Killed As Company Reveals SEC Is Probing Financial Reports. According to Advisen, the SEC has started a formal investigation of St. Joe and Fairholme Capital, the company's largest shareholder. Bruce Berkowitz, the founder of Fairholme, is also the Chairman of St. Joe (NYSE:JOE) which is the largest landowner in the state of Florida.

The Financial Times (July 6, McCrum) observes that that St. Joe was a pulp and paper company formed in the 1930s that became a property investor and then housebuilder. St Joe was forced to halt most of its property development in the wake of the housing bust. However the Watersound-based company has largely refused to write down the value of its real estate, on the basis that last year’s opening of the Northwest Florida Beaches International Airport in the centre of St Joe’s forest land will spur commercial development.

St. Joe is no stranger to litigation and intrigue. Huygen's noted earlier this year that St. Joe distinguished itself by achieving the rare reputation ranking of zero among its peer group. The Securities and Exchange Commission is investigating how St Joe, a US property investor, accounts for the value of its almost 600,000 acres of land in north-west Florida.

Turning to current metrics, St. Joe is demonstrating ongoing depressed reputation metrics according to the Steel City Re Corporate Reputation Index. Over the trailing twelve months, the company's ranking rose from the 1st to the 5th percentile rank among the 139 firms comprising the Real Estate Development sector. To be clear, only 132 firms outranked it reputationally which may explain why it has been underperforming its peer group by 45%. Uncertainty is in the air. The reputation vector has been up and down quite a bit lately measuring in this past week at 44%.





Its market value is in excess of 50% intangible while the mean of its peer group is less than 10%. It is therefore curious that shortseller David Einhorn feels that the shares are overvalued owing to the excessive book value of the real estate assets. Undervalued intangibles vs. overvalued tangibles; a classic question of ethics and innovation vs. accounting. Or optimist vs. short seller: a curious battle indeed.

St Joe: The sky's the limit

C. HUYGENS - Wednesday, March 02, 2011
In an August 2010 post, Huygens observed that St Joe (NYSE:JOE), the real estate firm, was pursuing a litigation strategy to rebuild value allegedly lost to environmental challenges affecting the Gulf of Mexico. Many other firms were pursuing the same strategy, of course, but only a few had reputation rankings that were approaching "0." It was a metric that screamed for attention, and apparently certain key stakeholders thought so as well.

From the  National Association of Corporate Directors "Director's Daily", we quote:

"The chief of embattled Florida real-estate developer St. Joe Company agreed to resign along with three board members yesterday," the New York Post (March 1, Whitehouse) reports, "marking a victory for the company's largest shareholder, investor Bruce Berkowitz." Berkowitz, who heads mutual fund firm Fairholme Capital Management, has been fighting to save his 30 percent stake in St. Joe for months while vying with hedge-fund manager David Einhorn. Einhorn targeted St. Joe last fall. "The challenge spurred Berkowitz to join the company's board only to resign a few weeks later," the Post notes, "citing concerns about the board's commitment to 'shareholder value, pay for performance and effective corporate governance.'" Berkowitz launched a campaign to replace St. Joe's board with his own candidates instead of selling his ownership interest and siding with Einhorn. On Monday, he emerged the victor. St. Joe CEO Britt Greene has agreed to resign by the end of this week, and the firm has hired an executive search firm to help it find a successor. In addition, Greene stepped down from the board along with three other directors. "In their places," the Post concludes, "St. Joe will add four new directors proposed by Berkowitz, including Berkowitz" himself. Additionally, St. Joe will engage an executive search firm to find at least one additional independent director.

The Wall Street Journal (March 1) notes, "The board's capitulation happened suddenly as it appeared to be dug in for a long battle." Indeed, the first hint that Fairholme might win came a week ago when Fairholme stated in a regulatory filing that it was "in discussion" with the board about possible changes -- changes that were delayed while the company's existing board negotiated the terms of Greene's resignation. St. Joe's Hugh Durden, who will remain in place, remarks, "St. Joe is committed to acting in the best interests of shareholders, and in light of the feedback the Board of Directors has received, we are taking steps to change the Company's governance and leadership."


Turning to the most current reputation metrics for St Joe, the Steel City Re Corporate Reputation Index ranking as of last Thursday, 24 February, was zero relative to the 88 firms in the Land and Real Estate sector.

The exponentially weighted moving average of its reputation ranking was 0.1%, its trailing twelve week reputation velocity was -1%, and its trailing twelve week reputation vector was -.40%. In short, a chronically poor reputation. Economically, the company underperformed the median of its peer group over the trailing twelve months by 25.48%.

Looking at the sector as a whole, St. Joe's reputation ranking is at the bottom of a group whose reputation ranking over the past year has risen relative to the broad market, although there is greater than average internal variance. Last, while the intangible asset fraction of the sector rose to around 15% on average (from negative values in the early summer), St. Joe's fraction of around 60%, while much greater than that of the group overall, declined slightly.

St Joe: Heaven help us; alternatively, sue the #@!%*

Nir Kossovsky - Thursday, August 05, 2010
Reputation is a key performance indicator because it reflects the expected behaviors of stakeholders – the people who potentially buy goods and services, those thaat provide supplies on potentially favorable terms, the employees who potentially work willingly and frictionless, and the providers of credit and equity who may bet on the come. In short, reputation is the mediator of behaviors based on expectations.

St Joe (NYSE:JOE) a large Florida real-estate developer that owns 577,000 acres of land in Florida, mostly within 15 miles of the Gulf, reported that the April BP (NYSE:BP) Deepwater Horizon disaster resulted in huge losses for the company when hundreds of tourists canceled vacation plans to stay at its resorts. So it is suing Halliburton (NYSE:HAL) claiming damages evidenced by a 40% drop in its stock price and loss of $1 billion in market capitalization.
 
Neither the blog’s author nor the Society have a horse in the race. But we are interested in behaviors triggered by expectations because it is the underlying premise of the Society. This is it. There is a business case in managing the business processes (we call them intellectual properties) governing operational risk (call it governance, compliance, and risk management) through the deployment of intellectual capital that directly creates the impression held by stakeholders that we all call "reputation." Or stated simply, there is an upside to enhancing reputation, and a cost for losing it – and executives should have the tools to manage and monitor it. And if they don’t, the Society is here to educate. It's our mission

Turning to the metrics, we note that over the trailing twelve months, JOE’s reputatation ranking as measured by the Steel City Re Corporate Reputation Index slipped from the 10th percentile to the 0 percentile among 90 peers in the Land and Real Estate sector. Over this same period, the company has underperformed its peers by about 30%.

Looking more broadly at the sector, we note that the median reputation ranking for the entire sector rose over this period, and has been rising steadily over the past three months. Last the variance in the sector has been declining, making the reputational drop at JOE (or shown graphically, the lack of a rise) that much more significant.

Last, looking at JOE’s vulnerability to reputation volatility, we note that around 60% of its value is intangible; while the median fraction for the sector is near 0%. (The median fraction for all companies is about 65%; for the S&P500, the median fraction is around 82%).

The executive message points are that in firms whose value comprises a significant intangible asset fraction, stakeholder behaviors based on expectations – what we call “Reputation” – can have significant economic consequences. We will also note that JOE’s ranking has not been exemplary this past year. Our data (see book for details) show that when adversity strikes, firms with lower reputation rankings are unlikely to show reputation resilience and bounce back economically.

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