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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Monetizing the CEO

C. HUYGENS - Tuesday, September 29, 2009
In the world of intangible asset management and value, there are those who argue that the CEO's reputation is the main driver of corporate intangible asset value. We touched on this a few weeks back in the context of Whole Foods and their outspoken CEO, John Mackey. While we agree that the CEO alone can impact reputation-linked value, the magnitude is often far less than might be expected.

The Chicago Tribune posted a recent story titled: More CEOs cast themselves in company commercials: Corporate commercials: GM, Walgreens, Sprint put executives on the air, but effect is debatable. The short article includes a quote from Jon Baskin who spoke at our 2008 Fall Conference and is worth a read. We thought we would cut to the chase on motivation. The Tribune reports that "GM is trying to resurrect its image after a trip through bankruptcy court and a government bailout. Walgreens is undergoing a marketing makeover as it aims to return to steady profit growth. And Sprint is attempting to stem the loss of subscribers." The two year equity returns, shown below, speak volumes.



In the chart above, General Motors (NYSE:GM) is blue, Sprint-Nextel (NYSE:S) is in red, Walgreens (NYSE:WAG) is in black, and the S&P 500 index is golden yellow. We have looked at both General Motors  and Sprint  in the past and noted significant reputation losses. We have also shown in our forthcoming book, Mission:Intangible, that the business processes driving quality, integrity etc. are the primary sources of reputation value. The role for the CEO is to champion value-creating best intangible asset management practices.

But, fundamentally, we are empiricists, so we'll return in a few months to gauge effectiveness of the "CEO as brand" strategy.

The new Sprint

Nir Kossovsky - Friday, June 12, 2009
Last Friday June 5 2009, Sprint Nextel Corp’s CEO Dan Hesse told analysts and reporters, "We're a very different company than we were 12 months ago. The Pre is the coming-out party for the new Sprint, to show off the new Sprint." The reputation metrics provided by Steel City Re’s IA (Corporate Reputation) Index, have yet to reflect this corporate change.

The Index, which correlates with reputation surveys such as those published by Forbes, Fortune, and Harris Interactive, captures the financial implications of stakeholder behaviors and expectations of stakeholder behaviors as determined by corporate reputation. The Index is a good leading indicator of financial performance and returns on equity.



The Steel City Re Index shows that over the last twelve months, Sprint's reputation has deteriorated from the 33rd percentile to the 12th percentile among the 34 companies that comprise the Wireless telecommunications services sector. The Company's EWMA IA volatility has generally been increasing and hovers around 4 log orders of magnitude. These are all features seen in companies that are inferior stewards of their intangible assets, and it is therefore not surprising that Spring has underperformed the median of its peers by 8.5%.

As for the hot play as of 10 June 2009, the firm with the top reputation ranking among Wireless telecommunications services sector entities is China Mobile Ltd. (ADS) (NYSE:CHL). For those of you who do not follow this company, we reproduce the following from their home page: "We are pleased to note that the Company ranked number 1 in the China Section of FinanceAsia's 2009 Asia's Best Companies poll in the four categories: Best Managed Company, Best Corporate Governance, Best Corporate Social Responsibility and Most Committed to a Strong Dividend Policy." With an ROE that is 0.5% above the median of this sector to date, this is one to watch.


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