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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Apple: What stakeholders want

Nir Kossovsky - Wednesday, March 10, 2010
Stakeholders own a company’s reputation, and their behaviors are outward expressions of their true feelings.

The behaviors that are relevant to this Society are those that create enterprise value. Among them are acceptance of higher price points, extension of superior credit and labor terms, lower operating friction, higher earnings multiples, and lower credit costs. For readers of this blog or the recently published book, Mission: Intangible, this is old news.

More to the point, in Mission: Intangible, we noted that mutual funds comprising companies with reputations for advancing social values tended to underperform their benchmarks. Among the six major intangible assets that underpin reputation (ethics, innovation, quality, safety, sustainability and security), only excellence in sustainability seemed not to correlate with superior economic performance.

So from time to time, we revisit the issue of the value of green. The triggers for our current revisit are three:

First, a blog note from a friend of the Society, author, and marketing consultant Jon Baskin in which he noted that shareholders at Apple (NASDAQ:AAPL)  recently defeated a new corporate social responsibility initiative.

Second, is the growing movement to create a third class of corporate structure – the “beneficial corporation.” Vermont currently leads this movement with legislation that would allow companies to both (a) return gains to investors and (b) provide social good for the community. The law would give “for profit” companies legal cover to pursue societal goals that may yield less profit. The Vermont initiative is driven by the remorse of socially-conscious shareholders who supported Ben & Jerry’s acceptance of Unilever NV’s (NYSE:UN) buyout offer under threat of litigation from financially-motivated shareholders.

Third is an advertisement of comparative derision that caught our eye in the Wall Street Journal. In the ad run by Oracle (NASDAQ:ORCL), they contrast the following under the headline of “IQ Test”: (their) Sun SPARC computer that run 7x faster versus IBM’s (NYSE:IBM) fastest computer that consumes 6x energy. They ask the consumer tongue in cheek to choose: Faster Computers or Smarter Planets.

We believe that the question of being green or being profitable is a false choice. At the same time, it is self evident that the transfer of corporate profits into social benefits both within and outside the company will at some point reduce cash flows available to shareholders. We will continue to observe and share what we see.

Heads Up - Date Change

The Mission: Intangible Monthly Briefing for April 2010 will be held one week later than usual in deference to those who celebrate Good Friday. On 9 April 2010 at 12h00 EDT, the second Friday of the month, we will host a conversation featuring incoming Integrity and Corporate Responsibility Committee Chairman Paul Liebman from Dell  (NASDAQ:DELL) and IA Value Signaling Committee Chairman Jon Low from Predictiv. The title for the one hour moderated discussion is: Ethics - A valuable intangible asset? Mary Adams from Intellectual Capital Advisors hosts.

As always, registration for this popular series is complimentary and slides will be available for download in advance of the event. To register now, click here.

Join Us

If the above intrigues 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, including a new book, to further your executive career, and exciting monthly conferences such as the upcoming one on ethics mentioned above.

Eclipse of the sun

Nir Kossovsky - Monday, April 13, 2009
Last Monday, 6 April, the world learned that IBM (NYSE:IBM) was no longer interested in acquiring Sun Microsystems (NASDAQ:JAVA). Speculation as to the reasons for the collapsed deal include price, intellectual property and hubris. Let's look at the intangibles of this deal from the perspective of the Steel City Re  Intangible Asset Finance (corporate reputation) (IA) index.

The charts below shows IBM. As seen in the upper chart, among the 48 companies comprising the Computers and Peripherals sector, IBM has ranked in the top 99th or 100th percentile this past year. In terms of return on equity, it outperforms the median of its peers by 33%. As seen in the lower chart, the volatility of its index score is only two orders of magnitude and is decreasing. This is a company with an exceedingly strong reputation that stakeholders believe they understand, and clearly like.



The charts below shows Sun Microsystems. As seen in the upper chart, among the same 48 companies comprising the Computers and Peripherals Group, Sun (JAVA) has ranked no higher than the 50th percentile a year ago and is now ranking below the 20th percentile. In terms of return on equity, notwithstanding the surge in anticipation of a potential deal, it has underperformed its peers by nearly 20%. As seen in the lower chart, the volatility of its index score is three orders of magnitude and is now increasing. This is a company with a rapidly deteriorating reputation that stakeholders are liking less, and are concerned they no longer know.



The data indicate that since Sun Microsystem's reputation is not going to help IBM, the latter can afford to wait until hubris is humbled and the price stabilizes.



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