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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Cisco: Prudent management

C. HUYGENS - Tuesday, August 19, 2014
Last week, Cisco confirming what had been rumored for months, announced layoffs in declining businesses and plans to shift resources to growing businesses. This appears to have surprised no one but equity investors and a handful of misguided lay analysts who naively opined on the layoff's reputational impact.

In order to maximize stakeholder benefits, a company's first duty is self-preservation until it is time to give up the ghost and payoff investors and lenders. Empirically, as shown in the charts below, Cisco operates in what is today a highly volatile sector where the average company's reputational value is below the broad market average. These are not the "good old days" by any stretch, and managing the enterprise to preserve its present and going forward value is prudent.

In this context, the definition of corporate reputation--the expectation of future performance based on a present understanding and approval of past performance--helps explains Cisco above average reputational value relative to peers, and its below average risk. And why the company's layoffs indicate responsible behavior, equity investors panicking at the margin notwithstanding

Reputation is what stakeholders expect will occur, how favorably they view those outcomes, and how reliable they seem. Jonathan Salem Baskin explains further on the Consensiv blog.


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