Hurd on the Street

We have long been advocates for the visible and public management of reputation risk by corporate boards.   Ethical sourcing of raw materials, monitoring of emerging market labor practices, assessments of appropriate marketing to children are all fit subjects for board level scrutiny.   Nonetheless, we were somewhat taken aback by the very public association of the firm APCO with the recommendation that HP’s board ask CEO Mark Hurd to step down.  Various news stories described the analysis by the firm as showing that a decision to let Hurd stay would be a PR nightmare for HP.

We can argue about whether such a nightmare would actually have occurred and there are differing opinions as to whether the alleged expense account improprieties were in themselves a firing offense.  What stands out for us is the presentation of APCO’s recommendations almost as if they were a credit rating, an audited financial filing or a fairness opinion.  Look, HP’s board seems to be saying, we’ve consulted expert advisors and this is their recommendation, so you can’t second guess us.  If this positioning turns in to a trend, it could lead in some interesting directions.  Do BP’s perceived communications failures constitute one of the counts in a shareholder lawsuit?  If a company planning a product recall does not consult outside crisis counsel, is that a breach of fiduciary responsibility?  Will we see the emergence of a Big Four group of certified reputation risk consultants?  Will the current Big Four accounting firms simply add this to their service offerings?

It’s obviously too soon to know which scenario will end up being played out.  Having co-developed a methodology with Oxford Metrica for measuring the shareholder value impact of reputation events, we are watching this space with intense interest.

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3 Responses to “Hurd on the Street”

  1. Dave Kawalec Says:

    How much of this trend do you think has to do with firms offering services to compile metrics like “reputation scorecards”? While such tools have value, the very act of assigning numbers assigns an impression of accuracy, indeed of meaning, that just isn’t real.

    However, these tools produce The Number. And the kinds of people who get into positions to make important decisions like numbers, because numbers are unambiguous. Never mind that The Number might more properly be viewed as a place to start, rather than end, a discussion. It’s this obsession with imposing certainty (any certainty whether true or not) on a fundamentally uncertain world that is the crux of the problem.

    It reminds me of the insanity of Nielsen television ratings. Everyone knows that the numbers are not accurate (including Nielsen), that local and national ratings don’t match, that Nielsen still uses paper diaries to some extent which are almost never accurate, that Nielsen still hasn’t figured out a way to properly account for time shifting and Internet viewing, and that Nielsen is prone to “massage” ratings numbers to meet expectations of networks and stations.

    But, networks, affiliates, sales reps and advertisers need The Number that everyone can agree upon. The Number is then assigned a meaning which doesn’t correlate very accurately to reality. They all know it doesn’t correlate very well, but they all act as if it does. They employ countless analysts to slice and dice and manipulate statistics in order to show that The Number tells a great story.

    So, in reality, television advertising is being bought and sold based on a perceived solid narrative derived from questionable statistics gotten from mostly imaginary numbers.

    • Peter Hirsch Says:

      Many of your observations are dead on, Dave. That’s why I developed a stock price-based reputation metric with Oxford Metrica that strips away overarching market forces to reveal a true value reaction for an individual company. Using publicly available data eliminates the arbitrary nature of many opinion-based metrics.

      • Dave Kawalec Says:

        I’m interested to know how you separate reputation’s effect on stock price from stock price’s effect on reputation. How do draw distinguish among reputation, perception of reputation, perception of impact of reputation, perception of impact of perception of reputation, etc. ad nauseum?

        Publishing an analysis of the impact of the Hurd affair on HP’s stock price can impact HP’s stock price. When individual and institutional investors are also the ones doing the analysis, things get dicier still. It’s like a cable TV pundit who declares something outrageous on Monday, and uses his fans’ positive reaction as proof of the correctness of his declaration on Tuesday.

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