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.

GM: Reputation ain't necessarily better

C. HUYGENS - Tuesday, October 07, 2014
Nishit Madlani, an analyst at S&P, is finding encouraging signs at General Motors. "The company's performance over recent months has shown that recalls haven't impacted sales. Reputational damage did not transpire, for the most part," reports Bloomberg, according to Risk Management Monitor.

It ain't necessarily so. According to an analysis published by Consensiv, the reputation controls company, based on reputation value metrics used at Steel City Re, General Motors’ reputation premium, a measure of additional value arising from favorable stakeholder expectations, is down to the 40th percentile from the 55th within its peer group since March.

Reputation Statistics and Anecdotes

C. HUYGENS - Thursday, October 02, 2014
For professionals struggling to get their arms around the business case for reputation risk management, this posting from the Risk Management Monitor today provides the most recent statistics on the prevalence of reputation risk concerns at senior corporate levels, and timely comments on specific sources of reputation risk at Goldman Sachs, Lloyd's Banking Group, Tesco, and General Motors.

Read more.

This Week at Lake Reputation-be-gone

C. HUYGENS - Friday, July 25, 2014
"It was hardly a quiet week at Lake Reputation-be-gone," Garrison Keeler might have said. "Walgreen, McDonald's & Yum!, and current poster-child GM had their respective moments in the sun...again."

Walgreen's issue is an ethical one. The company whose motto proclaims it to be "the pharmacy that America trusts" would just as soon not pay America $4 billion in taxes over the next five years. The company is now deciding whether to take advantage of the US tax law loophole that would reward it substantially with a lower tax base were it to acquire controlling interest in a Swiss-based company and nominally relocate its headquarters overseas.

McDonald's and Yum! were apologizing for supply chain issues that again raised questions of food quality and safety in the Chinese operations. Earlier this week, Chinese regulators closed the Chinese division of an Illinois-based good supplier (OSI) after a TV report showed workers picking up meat from a factory floor and mixing expired lots with fresh lots of meat. Upton Sinclair would have been proud.

GM announced six additional automobile recalls this week bringing its total for the year to 60 announcements covering 29 million cars worldwide. Quality and safety issues are at the forefront, but they are not all associated with supply chain failures. Some, in fact, are due to assembly and integration issues in GM's wholly-owned operations.

As is the case after every major operational issue, the press is making much ado about the damaged reputations of these firms. The events are certainly news-worthy and embarrassing. Whether they cause stakeholder to reassess their respective relationships with the companies, however, is the central issue in a reputation crisis.

Walgreen's issue is unlikely to have any effect on most stakeholders. Equity investors will be thrilled, and creditors equally so. Legislators are unhappy, but it is not clear their opinion matters much since they have proven their inability to do much of anything.

This is Yum!'s second bout of China-related supply chain safety and quality. The toxic chickens of 2012/2013 gave them quite a reputation scare, which is why they may have dumped OSI like a hot pan. McDonald's is new to this type of crisis and is sticking with OSI. Also, McDonald's maintains qualitatively different types of relationships than Yum! with its suppliers. By forgiving OSI, McDonald's is demonstrating the benefit of OSI's historically stellar reputation…to OSI.

GM is now in a league of its own. Credit the company with fabulous spin control by declaring that Wednesday's additional recalls signified how the company had enhanced its approach to safety.

GM: Beating the odds at 1 in 6000

C. HUYGENS - Wednesday, July 09, 2014
In a game of heads you win, tails I lose, the only strategy is land a coin on its edge. According to Daniel Murray and Scott Teare writing in Physical Review E, the probability of an American nickel landing on edge is approximately 1 in 6000 tosses.

In a game of bet-the-company, those aren't great odds. Caught between customers and victims who wanted open ended compensation, and creditors and investors who wanted to protect GM's assets from open compensation, CEO Mary Barra was bound to anger at least one key stakeholder group -- and therefore lose. As the metrics below report, she beat the odds and successfully delighted both.

According to the reputation analysis published by Consensiv, the reputation controls company, based on reputation value metrics from Steel City Re, the reputation insurer, GM's reputation benefitted from the appointment of Kenneth Feinberg to oversee GM's compensation fund.

The bump to observe on the graph begins around June 15th, the week Google Trends shows a significant and steady uptake in Google search interest in Kenneth Feinberg. That same week witnessed the beginning of an uptick in the reputation metrics. GM’s reputation premium, a measure of additional value arising from favorable stakeholder expectations, rose to the 46th percentile within the 37-member automotive peer group, while the consensus trend, a measure of stakeholder surprise, showed a reasonable increase up to 1.2%.

Of course, the company’s overall reputation health is still middling.

The strategy Barra used has a name. Read all about it at Risk & Insurance or at Business Insurance.

Brand v. Reputation: GM edition

C. HUYGENS - Thursday, April 17, 2014
An operational failure in business process controls or supply chain integrity management can help sharpen the difference between the value of a reputation, and the value of a brand. For a company like GM being roiled by evidence of longstanding failures in governance, controls and risk management, the difference implies two very different future courses.

Jonathan Salem Baskin, Managing Director of the reputation controls company, Consensiv, explains:

If corporate reputational value were nothing more than immediate public opinion — like brand awareness — then the company could rely on consumers’ ability, if not overt desire, to forget the past and literally “buy” the company’s latest sales pitch. But reputation is an asset based in operational reality, not the minds of consumers, and GM faces a long list of stakeholder expectations, and resulting valuations, that won’t be easily erased or forgotten. From processes to supply chain relationships, analysis and reporting thresholds, to all of the substance of its relationships with its various communities have been called into question by the ignition crisis, and those stakeholders are and will make future decisions based on it.

Read more.

Screw Up, Cough Up

C. HUYGENS - Monday, April 07, 2014
When the big banks screwed up, taxpayers felt the pain. Much was made of the observation that those who could, or should, have seen the disaster coming were financially rewarded in the interregnum. There is no monopoly of socializing risk. The New York Times observed over the weekend that "While shareholders of G.M. will shoulder the costs of fines, settlements and the loss of trust arising from the mess, the executives responsible for monitoring internal risks like these are unlikely to be held to account by returning past pay."

The word is clawback. Two years ago, as the crisis of the London Whale was engulfing JPMorgan Chase, Bloomberg reported "that “New York City Comptroller John Liu said that JPMorgan should tell shareholders it will ‘aggressively claw back every single dollar possible from the executives responsible for the $2 billion loss.’” Huygens observed that employees subject to the clawback would probably have other opinions.

Fast forward, and it is deja vu all over again-but different. In additional to financial shenannigans, Scott M. Stringer, the current New York City comptroller, who oversees five municipal employee pension funds with assets of $140 billion, has successfully negotiated expanded thresholds for clawbacks at five companies this year including both banks and non-banks: Allergan, Halliburton, Northrop Grumman, PNC Financial and United Technologies.

According to the New York Times, "Under the agreements, pay can be retrieved from a wider array of senior executives than is typical. And recoveries can be sought not only for intentional misconduct and gross negligence, but also for violations of law or company policies that cause significant financial or reputational harm to the institution." Failures in governance, controls, and risk management are actionable causes.

Huygens has often suggested that reputational value metrics, such as those published by Consensiv,  could be useful tools for managing reputation. The New York City comptrollers have identified another application: measuring loss to trigger punishment.

Read more.

GM: Barra is owning it

C. HUYGENS - Tuesday, March 25, 2014
GM's got issues. Ten years of sweeping safety problems under the rug has come back to haunt it, just as it haunted Ford for its Pinto. Haunt is not the best word. The German's call it a "shitstorm," or what the UK's Financial Times called "the pile on of litigators, regulators and mommy bloggers." Huygens prefers the term "reputation crisis."

Now here's the funny thing. Typically, in a reputation crisis, the marketing types describe a Kabuki-like ritual of how the CEO needs to apologize, demonstrate contrition, and all will be forgotten. The New York Times quotes a prominent PR executive saying "She's owning it," which sounds good until the the rest of quote kicks in, "'She will not be able to distance herself from it. It's now hers,' said the P.R. man, Daniel G. Hill, in what sounded a bit like a threat." Barra has pundits scratching their heads. "It was puzzling, then, if not downright ill advised, for GM's CEO, Mary Barra to last week personally lay claim to the biggest crisis at her company since the financial crisis."

Barra's actions, however, are textbook reputation crisis management if you come from the school that a PR crisis is no more than a window into an operational crisis. To effectively manage stakeholder expectations going forward (the entire value proposition in reputation risk management), you have to promise to to the right thing...and have stakeholders believe you.

It takes only three steps: (1) Admit there is a problem; (2) Apologize for allowing the problem to arise, affirming that the problem violates everything you and the firm stand for; and (3) promise it will never happen again. Here's Barra last week from the New York Times: “'Our goal is to make sure that something like this never happens again,' she said." Extra points go to the firm that promises that something of this sort will never happen to any other firm in the industry.

If stakeholders find Barra credible, they may set high expectations going forward. The benefit is that GM may demonstrate reputational resilience. The risk, as Arthur C. Liebler, who was Chrysler’s top communications executive during Mr. Iacocca’s heyday told the New York Times, is "Ms. Barra and her team will be watched very closely now and will have to prove that they mean what they say. If they don’t deliver, there won’t be a second chance.”

The quantitative reputational value profile of GM, according to Consensiv and based on Steel City Re's reputational value metrics, is shown below. Not surprisingly, the Reputation Premium has been sinking, but interesting, not acutely. Its been on a bumpy ride down to 0.35 percentile for a while, suggesting stakeholders were increasingly discounting GM for some time. The Consensus Trend, CT, is much more interesting. It leaped from a very low level relative to the other 39 companies in the Motor Vehicles peer group to an absolute level of 5.2%. This indicates stakeholders have moved from a more or less uniform set of expectations of GM to a much more diverse mix.

It is a risky time for GM with its reputational heath approach the danger zone. Barra has stakeholders' attention. Early indications were promising, but the most recent additional drop these past two weeks in the Reputation Premium does not bode well. Stay tuned.



For more background on the Consensiv reputation controls, click here. To view the December 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here. Last, to read more about how reputational value is linked to stakeholder expectations and enterprise value, read, Reputation Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012) (click here).

GM: In German, the word is "shitstorm"

C. HUYGENS - Wednesday, March 12, 2014
In the UK's Financial Times, the escalating events following public disclosure of an adverse situation have been described as "the pile on of litigators, regulators and mommy bloggers." The Germans invented a new word, "shitstorm." Whatever you call it, GM's failure to learn from Ford's Pinto is providing another generation with an object lesson in reputation risk - failing to meet the expectations a company has set among stakeholders.

Federal prosecutors are examining whether General Motors is criminally liable for failing to properly disclose problems with some of its vehicles that were linked to 13 deaths and led to a recall last month…The federal probe by the U.S. attorney in Manhattan adds to a growing list of U.S. authorities examining the recall, which GM announced in February. The National Highway Traffic Safety Administration (NHTSA) previously opened an investigation into whether GM reacted swiftly enough in its recall….a U.S. Senate committee chairman is seeking a hearing on the issue. The U.S. House Energy and Commerce Committee also ordered GM and NHTSA to turn over information about GM's ignition switch problems.

GM declined to comment on yesterday as shares of GM closed down 5 percent to $35.18 on the New York Stock Exchange. "The immediate financial impact is insignificant; however, there could be some reputational risk which could impact share," RBC Capital markets analyst Joseph Spak said.


Here's another object lesson. For those who are still confusing brand with reputation (Brand v reputation, GM Impala edition), consider this from Steel City Re, a provider of reputation assurance solutions.

A 21st century reputation is testament to how stakeholders expect a company to behave. It includes responsible behaviors such as supply chain integrity; manufacturing or production quality; ethical standards; innovation and intellectual property management; environmental sensitivity; and security management. It specifically includes C-suite and Board-level behaviors including governance, controls and risk management policies. Reputation risk arises when a company fails to properly set expectations or fails to meet them. Stakeholder disappointment at such shortfalls can have significant personal consequences for the company’s Directors and Officers; and it can result in potentially unlimited costs of damaged stakeholder relationships going-forward.

Reputation Risk is a strategic risk.

Read more from Reuters.

GM: Lessons lost from Ford's Pinto

C. HUYGENS - Friday, March 07, 2014
Just the other day, Huygens was explaining how short-term investments in safety can avert long-term reputation damage. The reasoning is simple: if stakeholders understand and appreciate that you value safety by actually doing something about it, then they'll give you the benefit of the doubt if and as when an adverse event occurs. Being a beneficiary of doubt is especially valuable to corporate officers and board members who are the first to be blamed when things go bad. It's the time when grown men and women wish they could get their lives back.

The poster child for excellence in reputation management through operational risk mitigation was…Warren Buffett's Berkshire Hathaway, which had invested $600m in new, safer rolling stock to transport volatile petrochemical products. The current rolling stock catches fire too easily.

To underscore the value of Buffett's investment, the poster child for wrong thinking was presented in contrast. The logic behind the acceptable losses for Ford's Pinto and its exploding gas tank was enabled by bad math. Sure, the costs in lives lost, after insurance, was less than the costs of recall. Nobody thought to factor in the cost of lost reputation -- the costs when stakeholders don't want to buy any of your cars, employees don't want to work for you, suppliers are thrilled being associated with you, the capital markets look at you funny, and the regulators come down hard.

Alas, lesson lost. It appears malfunctioning ignition switches have flummoxed GM engineers for over a decade, even as they resulted in 31 fatalities in Chevy Cobalts. Only last week did the company expand its recall of impacted cars to almost 1.5 million units. The government has initiated a probe into how GM has handled its investigation. GM North America President Alan Batey said in a statement. ‘The chronology shows that the process employed to examine this phenomenon was not as robust as it should have been.’”

Read more.

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