"The threat of a scarred corporate reputation currently ranks as the No. 1 type of strategic risk"
Tony Chapelle, financial journalist
"I'd like to get my life back." Famous words from a famous former CEO treading oil-slicked waters. The bottom line: when things go wrong for a company, they can go terribly wrong for its directors and officers on a very personal level.
It is never more lonely at the top as when all the world is holding a handful of officers and directors culpable for some adverse event that challenges the authenticity of a company's culture, governance and risk management practices. The opprobrium can be brutal.
After multibillion-dollar trading losses at JPMorgan Chase, two board members, David M. Cote and Ellen V. Futter, were buffeted by criticism. Some investors said the risk committee lacked the financial prowess to safeguard against the kind of trading losses that hit JPMorgan. Both resigned from the Board. The trading debacle was also widely viewed as a black mark on the leadership of Jamie Dimon, the bank’s charismatic chairman and chief executive.
Last July, the Financial Times published a story by Peter Whitehead titled, Company disasters – boards are to blame. The article was accompanied by a somber promotional video clip from the consultancy, Reputability (link here), explaining why.
In a spirited discussion on the Boards and Advisors LinkedIn group triggered by the article, it was flatly alleged "...that - even with non-performance of management - boards must be to blame, by their very nature and power. There are no flawed companies, only flawed boards. Boards are responsible for everything - management selection, strategy approval, risk oversight, compensation setting, etc. Boards can't argue "we missed it" because increasingly regulators are saying we will hold you responsible if you do miss it because it is your responsibility to know and not to miss. So institute systems and reporting so you do not, and replace management if need be."
Big events that trigger tsunamis of opprobrium on directors and officers usually also come with large price tags. These events reflect failures in systems that govern ethics, safety, and other key drivers of reputational value.
From a prior blog note, the top ten greatest extraordinary expenses arising from business process failures that disappointed a diversity of stakeholders, including regulators (read, failure of governance) are:
- BP – $1.256 billion (environmental and related offenses) (2012)
- Pfizer – $1.2 billion (marketing offenses) (2009)
- GlaxoSmithKline – $956 million (marketing offenses) (2012)
- Eli Lilly – $515 million (marketing offenses) (2009)
- AU Optronics – $500 million (antitrust) (2012)
- Abbott Laboratories – $500 million (marketing offenses) (2012)
- Hoffman-LaRoche – $500 million (antitrust) (1999)
- Yakazi – $470 million (antitrust) (2012)
- Siemens – $450 million (FCPA) (2009)
- Halliburton/KBR – $402 million (FCPA) (2008).
As the blog's author noted, "What is striking here is that fully half of the ten largest federal corporate criminal fines in history were imposed or agreed to in 2012. I cannot recall another year with so many new cases on the list."
Huygens is all for rounding up the usual suspects and charging them with the usual crimes, but doubts this is the best path to improved operations, superior governance, or better risk management. Nor a particularly good route to value creation. Rather, the path to protecting directors and officers from personal reputational damage is to institute superior enterprise-level controls, and then making sure that stakeholders can both appreciate and value them. This is one example of what an investment in reputation protection looks like:
From Seeking Alpha's 21 February 2014 posting:
Will Rogers and Warren Buffett and perhaps others have been quoted as saying "It takes a lifetime to build a good reputation, but only a minute to lose it." Well, Buffett just decided to invest about $600M in its railroad subsidiary, BNSF, to protect Berkshire's (BRK.A) stellar reputation.
BNSF confirmed that it intends to buy a fleet of 5,000 tank cars to ship crude oil and ethanol, using specs that exceed the most stringent industry standards approved in October 2011 (see here).
It wasn't a major news item. It certainly wasn't a headline. But the analysts watching understood it. Safety matters.
If your name is not Buffett, analysts may not be watching as carefully. Then you'll have to make some noise creatively.
Image credit: Daniel Diaz, Madrid.
Programming calendar for the Mission Intangible Monthly Briefings
This free series of moderated conversations are fabulous educational events. We have a terrific line up with leading authorities addressing core issues on a broad range of intangible asset drivers of value. See the program list for 10H00 ET on the ~first Friday of each month below.
Our program moderator is the global brand strategist, Jonathan Salem Baskin.
Jonathan is President of Baskin Associates, Inc., a marketing decisions consultancy. He is the author of four books on branding and marketing ("Tell the Truth" will be published in April, 2012), a columnist on marketing leadership for Advertising Age, and blogs at Dim Bulb and Histories of Social Media. He has 29 years of experience working with leading global brand names and is headquartered in Chicago, Illinois. You can read more about Jonathan here.
For those wishing to follow the Briefings with written materials, slides are available for download on the Society's events page in advance of each program, and we strongly encourage audience-sourced questions before and during the event. There is no cost to the slides or to participate in the broadcast, but we do ask attendees to register. Register now for the next Mission Intangible Monthly Briefing.
In addition, if you should miss an event, or if you would like to review an event, an archival set comprising the slide presentations and audio recordings are available for each of the prior events through the Society's store. Society members receive a substantial discount. Learn More - Monthly Briefing
Briefing Friday 25 October at 10h00 ET
Program: Prove It! Short knives in patent infringement litigation
The secret to monetizing patents is well kept, indeed. But while most never earn back the funds invested in the research and patent prosecution, not to mention time, a few are blockbusters. Blockbuster status is hardly a matter of luck.
Joining the program on providing factual support for allegations of patent infringement is Barry K. Horvick, Founder and President of Corporate Intelligence Researchers, Inc., and an authority on patent enforcement in the U.S. Federal Courts and by the U.S. International Trade Commission during Section 337 Investigations; and James Singer, an intellectual property attorney with Fox Rothschild. Mr. Singer and the law firm of Fox Rothschild LLP support the Society through pro bono legal advice in intellectual property matters.
Briefing Friday 22 November at 10h00 ET
Program: For All The Intangibles In China
The Middle Kingdom remains one of the great frontiers for global economic growth, but it's becoming a more challenging environment. As the an export-fueled economy turns more to domestic consumption, entirely new pressures will arise in the global management of intangible assets: the processes behind ethics, quality, safety, sustainability, and security; and the legal instruments protecting innovation including patents and trademarks.
Joining the program to explore this critical topic for the final program of 2013 are China business experts Daniel P. Harris of Harris Moure, an international law firm, and Jonathan Low, a Partner in Predictiv, a consulting firm specializing in the valuation of intangibles, and also a member of the Society's Reputation Leadership Council.
Briefing Friday 17 January at 10h00 ET
Program: Innovation: Reputation Mountains or Patent Mole Hills?
It's the start of a new year, and while the eggnog is still coursing through veins, its appropriate to join the battle rationalists and empiricists have been duking out since René Descartes' famous, "I drink therefore I am (With apologies to Monty Python)."
What is true innovation? Is it a reputation -- a perception held by stakeholders -- or is it a schedule of original, useful, and non-obvious inventions whose economic value is protected, somewhat, by letters of patent issued by a sovereign? For example, Samsung has a reputation for copying Apple, yet analysis of the patent data for each company tells a different story. What is the metric used by a majority of stakeholders? Is it the right metric?
Joining the program to explore this critical topic for the first program of 2013 are Mike Pellegrino, President of Pellegrino & Associates, LLC, a boutique valuation company; and Kenan Jarboe, President of Athena Alliance, an organization dedicated to public education and research on the emerging global information economy, and also a member of the Society's Reputation Leadership Council.
Briefing Friday 21 February at 10h00 ET
Program: Innovation: Sharia and Intellectual Property
Monopoly rights in the use of assets reflect cultural values. Intellectual property rights, for example, are enshrined in the ultimate authority in the US, the country's secular Constitution. What about other countries and cultures where authority is derived from spiritual texts?
Joining the program Friday, February 21 to discuss Islamic IP law and its interpretation and practice through the lens of Sharia law will be Dr. Imad-ad-Dean Ahmad, President of the Minaret of Freedom Institute, an Islamic think-tank; and Dr. Michael Greenberg, Rand Corporation, and also a member of the Society's Reputation Leadership Council.
Briefing Friday 28 March at 10h00 ET
Program: Intangible BRICS - Brazil Edition
These BRICS have ample demand for mortar; the five countries joined by a 2001 acronym penned by Goldman Sachs' Jim O'Neill now comprise an economic association of developing or newly industrialized countries with a combined nominal GDP in 2013 of US$16.039 trillion.
Over the past decade, they -- Brazil, Russian, India, China and South Africa -- have distinguished themselves by their large, fast-growing economies and significant influence on regional and global affairs. And while all five are currently stumbling a bit, they will ultimately be righted, or sunk, by how effectively they develop and exploit their intangible assets.
Joining the program to explore the intangible assets in Brazil are Jose Roberto Martins, Founder, CEO, Global Brands, Sao Paulo, Brazil; and Jonathan Low, a Partner in Predictiv, a consulting firm specializing in the valuation of intangibles, and also a member of the Society's Reputation Leadership Council.
Briefing Friday 18 April at 10h00 ET
Program: Bitcoin-The Ultimate Intangible Asset
As described by CNN's Money, "Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks!" Is this a net benefit?
Tyler Winklevoss, one of the victim/villians at the founding of Facebook as portrayed in the movie, Social Network, and a Bitcoin enthusiast explains, “… it’s a transaction free, borderless global payments system…its intrinsic value is that it takes all those costs out of the legacy system we’ve known for so long.” Free is the upside of anarchy. The FBI has raised concerns about the use of virtual currencies in illegal marketplaces. A major Bitcoin exchange, Mt.Gox, collapsed after it was (virtually) robbed. And the IRS is treating the virtual currency as a taxable property.
Joining the program to explore this intangible asset/currency are Vance Crowe, Founder, Articulate Ventures; and Paul Liebman, Chief Compliance Officer, University of Texas, and also a member of the Society's Reputation Leadership Council.
Briefing Friday 16 May at 10h00 ET
Program: IP Quality - 1, 2, 3 What Are We Fighting For?
The hardest part of business to business contracting used to be haggling over price; today, it is just as likely to be haggling over intellectual property rights. This is because Intellectual Property is potentially valuable -- provided it is really good stuff. What are the measures of "good?"
Joining the program to explore the patent quality and quality controls, and the critical role of the business executives in enabling patent quality, are John W. Kepler, JD, an attorney and authority on IP quality; and James M. Singer, an intellectual property attorney with Fox Rothschild and head of the firm's IP section. Mr. Singer and the law firm of Fox Rothschild LLP support the Society through pro bono legal advice in intellectual property matters.
Briefing Friday 20 June at 10h00 ET
Program: Pricing Strategies and Intangible Asset Value
Reputation, as followers of the Society know well, makes its presence felt on every line item of a company's profit and loss statement. The intangible asset value of a good reputation enhances pricing power while reducing labor, supply, and credit costs. What about the other way around, meaning, for example, the impact of pricing on intangible asset value?
Joining our program on Friday, June 20 will be Dr. Anshu Jalora, pricing expert and member of Reliance, Network of Pricing Champions, and Dale Furtwengler, an authority on pricing strategies with Furtwengler Associates.
Reputation is embedded in stock price. Reputation metrics exist to provide an independent measure. The Steel City Re Reputational Value Metrics is one such family of measures, and RepuStars® Variety was created several years ago to demonstrate both the independence of the metric and its value as a leading indicator. Values are updated weekly and posted on the Mission Intangible blog every Monday. Since 1 November 2011, the RepuStars® Variety Corporate Reputation Index has been calculated in real time by S&P/Dow Jones Indexes with quotes available on several popular financial websites. Click here for real time quotes.
MISSION:INTANGIBLE, the Blog
In addition to the weekly financial metrics, the blog of the Society offers critical comments on intangible asset management, reputation, and finance matters appearing in today's headlines. This past quarter, themes addressed included innovation, executive compensation, creative accounting, supply chain hazards, risk communications, labor ethics, trust, and much more.
Companies and other institutions recently reviewed include Boeing, Dole, Yum!, Dell, Moody's, S&P, HSBC, UBS, Walmart, Target, McDonald's and many more. Learn More - Mission:Intangible
Recent IAM Magazine Articles from the Society
Intellectual Asset Management (IAM) magazine, a Globe White Page Ltd publication, is the media partner of the Society. IAM magazine publishes in each issue a contribution from the Society on a noteworthy intangible asset finance matter. And since the January 2010 issue, we also added case studies on reputation management. Recent publications have covered developing a corporate culture of intangible asset protection, best practices for reputation crisis management, socially responsible investing, the art of regionally branding, advanced concepts in IP and venture capital, surveys of perceived intangible asset risk, and using insurances to manage patent risks. Learn More - IAM.
List Your Book With Us
The Society is pleased to call attention to books by our members; last year, we announced the first book from the Society titled (what else?), Mission: Intangible. Managing risk and reputation to create enterprise value.
If you are a Society Member and would like to list your book at no charge with the Society and feature it both on our website and in our store, including links to your preferred sales channel, please contact our publications Chair by clicking here. We take no commission on sales, so value this offer as yet one more intangible benefit of Society membership.
Reputation, intangible assets, intellectual capital, ESG, CRM, CSR, whatever. To the extent that anyone is talking about any of these, it is like the weather. Talk. No action. Unless they, like you, are a member of the Society. You're not, you say? Here's why you should be.
Through our community activities, educational programming, and outreach, members of the Intangible Asset Finance Society (IAFS) understand the implications and differences among reputation, intangible asset and intellectual capital and are preparing to do something about them. Here’s why:
1. Thought Leadership on Financial Metrics. The IAFS is the only interdisciplinary Society of professionals in diverse fields such as communications, risk management, intellectual asset management, operations, and finance committed to the financial exploitation of intangible assets. Superior exploitation translates into enhanced pricing power; lower operating and credit costs; and higher net incomes and earnings multiples.
2. Risk Management and Value Preservation. A lost reputation can destroy a firm overnight. IAFS can keep you up to date with enterprise risk management strategies for ethics, innovation, quality, safety, environmental sustainability, and security, all bundled in the stakeholder friendly wrapper of "reputation" management.
3. Preferential Pricing. Society members receive preferential rates for IAFS products at our new store and discounted registration to various professional meetings. Visit the Society's current News page for conferences where you can monetize your relationship capital with IAFS.
To renew your membership through our on-line store, click here. To apply for membership, click here.
Questions? Contact the Membership Chairman, David Gould, or the Executive Secretary, Nir Kossovsky. For contact information, click here.
Faced with such a cornucopia of value, how could you do anything but click here for a membership application form?
We have more than three years of action-packed Mission Intangible(R) Monthly Briefings available for sale and download at extraordinarily reasonable prices for Society members. Each Monthly Briefing package, comprising an audio file and slides, represents the work of leading edge practitioners in the emerging field of intangible asset financial management. We also offer books, including the Society's own publication, Mission: Intangible. Visit our store.
Linked-In IAFS Interest Group
Subtly signal to your colleagues that you know what it takes to create value in those assets that represent the bulk of a company's value today. Linked-In, the business networking website, hosts the IAFS icon that Society Members may wish to affix to their on-line bios. Like nearly 600 other forward-thinking executives, affirm your commitment to superior intangible asset financial stewardship by (click on the following phrase) joining the Linked-In group, Intangible Asset Finance Society - IAFS.