The Intangible Asset Finance Society held its annual meeting this week, and the discussions focused on protecting corporate reputation through prudent supply chain management practices.
The term “supply chains” evokes images of industrial manufacturing, but today, supply chains and related complex business networks are an integral part of almost every retailer (including food), licensor and franchisor. What links them all financially is the brand of the central iconic firm.
An interesting point raised by several speakers at the conference is that a company’s “brand” — represented as trademarks and the goodwill that accompanies them — are often managed by either a marketing officer or the intellectual property section of the company’s law department. However, for many companies, the biggest risks to brand reputation come from problems in the supply chain such as shipping delays, poorly-produced products, and hidden dangers (e.g., lead paint). Those functions are managed by entirely different groups — such as procurement and supplier relationship managers. To develop a strong brand and gain the market value that goes with it, companies must first either: (a) effectively ensure communication between the groups, or (b) have a single person responsible for actions from both groups. From there, the firm needs to manage the brand, mitigate risks against the brand, and communicate the value of the brand to stakeholders.
Many of the meeting’s discussion points find an origin in an article published in IAM Magazine by Peter Gerken, Robert Liscouski, and Nir Kossovsky of Steel City Re. (The article is available online for IAM subscribers only: for more information contact Steel City Re through the link above.) Steel City Re helps its clients protect their corporate reputation by implementing best practices for intangible asset management. Mr. Kossovsky is also executive director of IAFS.
As the article explains with supporting data, companies that are superior corporate reputation managers are rewarded with above-average equity returns. As the authors note:
“companies whose [reputation management performance] index place them in the top 25% of the 2,483 companies studied . . . rewarded their shareholders with an average (portfolio) return of 18%, which is about three times the market return of 6%.”
In other words, there is a direct relationship between stock price and intangible asset management practices.
More notes from the IAFS conference are available on the IAFS website by clicking here.