What is Klout worth to you?

klouttweetWhat a kerfuffle Klout has stirred up! The US company that offers a service to “measure influence onlinemade changes last week in the technology it uses to calculate an individual’s influence rank known as a Klout Score.

One of the results of the changes – all to do with improving the algorithms that calculate an individual’s Klout Score – is that “a majority of users will see their Scores stay the same or go up but some users will see a drop,” the company said.

My bold emphasis in that quote highlights what rapidly escalated into howls of protest by users as people’s Klout scores tumbled showing lower numbers – dramatically lower in some cases – which the formal posts on Klout’s blog did little to help people clearly understand why.

I’m a Klout user and, like many people I know, one who spent a lot of time trying to figure out how it works and whether it has any measurable value. As a user, I still don’t know for sure (give me a marketer’s hat, though, and it is clearer). But it doesn’t matter: I came to a conclusion a while ago that the value of services like Klout is more in the eye of the beholder, as it were, than in the subject’s eye.

It’s what others believe to be the value of a particular Klout Score to them. That requires a considerable amount of earned trust – and that, it seems to me, is where Klout has now got itself into some serious hot water.

The foundation of Klout’s business is the scoring system and some clever technology that runs it. But closely linked to that is a pure-play marketing programme that offers perks to users if they meet specific criteria connected to their score and their activity in the social spaces that Klout tracks, notably Twitter, Facebook, LinkedIn, Google Plus, Foursquare, YouTube, Instagram, Tumblr, Blogger, WordPress, Last.fm and Flickr.

The Klout Perks programme has attracted some big-name brands in the US such as Audi USA, Red Bull, Axe, Chiquita, and more.

And that’s where the cosy informal social-ness of a ranking or score hits the hard reality of marketing in a company that is attracting interest from investors that could give it a valuation of at least $200 million. And it looks as though the marketing is very hard nosed indeed as Ike Pigott’s experience clearly suggests.

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Cyber security on the investor agenda

cyberattackUS securities regulators have formally asked public companies for the first time to disclose cyber attacks against them, reports Reuters.

The US Securities and Exchange Commission issued guidelines on October 13 that sets out the kinds of information companies should disclose relating to cyber security risks and cyber incidents:

[...] Registrants should disclose the risk of cyber incidents if these issues are among the most significant factors that make an investment in the company speculative or risky. In determining whether risk factor disclosure is required, we expect registrants to evaluate their cybersecurity risks and take into account all available relevant information, including prior cyber incidents and the severity and frequency of those incidents. As part of this evaluation, registrants should consider the probability of cyber incidents occurring and the quantitative and qualitative magnitude of those risks, including the potential costs and other consequences resulting from misappropriation of assets or sensitive information, corruption of data or operational disruption. In evaluating whether risk factor disclosure should be provided, registrants should also consider the adequacy of preventative actions taken to reduce cybersecurity risks in the context of the industry in which they operate and risks to that security, including threatened attacks of which they are aware.

In its guidance document, the SEC says that reporting on cyber security risks and cyber incidents should be included in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

The SEC also makes clear that the guidance is just that, not a rule, regulation, or statement, although I can’t imagine many publicly-listed companies covered by SEC oversight not making any disclosure if warranted.

The SEC’s guidance is comprehensive in scope, enabling any company to clearly see what they need to do.

The subject of cyber security is high on the political agenda, too. Next month, the London Conference on Cyberspace takes place with a stated aim of offering “a focused and inclusive dialogue to help guide the behaviour of all in cyberspace.” Speakers include senior representatives from governments, business and civil society.

In addition  to the physical event in London on November 1 and 2, the conference embraces online communities where anyone can participate in debate and dialogue via the Twitter hashtag #LondonCyber.

Follow the conference on Twitter: @LondonCyber.

Famous last words

ubsgruebelIt’s probably no surprise to anyone that Oswald Gruebel, the CEO of Swiss bank UBS, quit his job on Saturday in the wake of the rogue trading scandal at the bank’s London office.

That alleged crookery looks like will cost the bank its anticipated profit for at least Q3, no bonuses for employees who would normally expect them, and a hole in the balance sheet of $2.3 billion (£1.5 billion / €1.7 billion) or more.

So the CEO fell on his sword. He’s quoted in UBS’ September 24 press release as saying:

[...] Oswald Grübel feels that it is his duty to assume responsibility for the recent unauthorized trading incident. It is testimony to his uncompromising principles and integrity.

This is the same man who was reported on September 18 saying:

[...] "I’m responsible for everything that happens at the bank," Mr Gruebel told Swiss Sunday newspaper, der Sonntag. "if you ask me whether I feel guilty, then I would say no."

That statement looked odd when I first read it. Maybe something got lost in translation, I thought (as did others). It reads like responsibility, yes, for the consequences, no.

Reality bit.

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When a UBS headline doesn’t tell you a story

I’ve been following developments today in the UBS $2 billion rogue trades scandal – and the latest news re an arrest of the alleged rogue trader in London today – which could lead the Swiss bank group to report a financial loss for the third quarter of 2011.

Visiting the UBS online newsroom, I was puzzled by an entry posted this morning entitled simply ‘Media Release’ as you can see in the screenshot:

ubs-news-sm

Click on the ‘More‘ button, and you see this:

ubs-news-more

The ‘More’ button reveals this text:

Zurich/Basel, September 15, 2011, 08:54 AM

Media Release

UBS has discovered a loss due to unauthorized trading by a trader in its Investment Bank. The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of USD 2 billion. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected.

Extraordinary – it looks very much like whoever wrote or published the news release was trying to hide the information behind a generic headline, perhaps hoping no one would really notice it. Look at all others releases in the UBS online newsroom – normal story titles as you’d expect. All but this exception.

No doubt there’s an innocent reason such as I’ve speculated. Yet there could be serious consequences nevertheless from this behaviour, perhaps in areas related to full and fair disclosure of information likely to affect the share price or otherwise affect investors’, shareholders’ and the wider financial community’s trust in the company, not to mention customers’.

And I’d be surprised if there weren’t Swiss or US financial industry regulatory matters that would embrace this, given that the company’s shares are listed on stock exchanges in Switzerland and the USA.

It adds up to a reputation crisis at the very least.

[Update Sept 16] Some of the repercussions I’ve seen reported since yesterday:

Financial Times Sept 15: Trader hinted at turmoil in Facebook posts

When Kweku Adoboli typed a short update on Facebook last Tuesday, he might have been referring to troubles other than a mounting trading loss at UBS.

“Need a miracle,” he wrote.

But the idea that it may have meant the 31-year-old knew he was in trouble provoked pity and shock among friends and acquaintances on Thursday, after he was arrested in connection with a $2bn fraud at the bank where he was a trader.

BBC News Sept 16: UBS did not notice Adoboli’s £1.3bn loss

[...] The disclosure that it was Mr Adoboli’s decision to inform his colleagues of his actions that set alarm bells ringing at UBS, rather than its own monitoring system, will add to concerns that investment banks simply aren’t capable of controlling the huge risks that their traders take.

UBS estimates that Mr Adoboli’s alleged unauthorised trading will cost the bank around $2bn (£1.3bn) and will more than wipe out the giant bank’s profits in the current three-month period.

If Mr Adoboli had not revealed his activities on Wednesday, in theory the final bill for UBS could have been even bigger.

Financial Times Sept 16: UBS bankers face zero bonuses

[...] Hundreds of UBS bankers could receive zero bonuses this year following the revelation that a 31-year-old trader at the Swiss group is suspected of losing $2bn through unauthorised trades.

[...] Analysts said that while UBS has enough capital to withstand the financial impact of a $2bn hit, such a massive trading loss could effectively wipe out any profits from its investment banking operations for 2011.

Over the first half of the year, UBS has earned a pre-tax profit of SFr1.2bn ($1.37bn) in its investment bank unit, headed by Carsten Kengeter.

A $2bn trading loss, which UBS said could push the entire group into the red for the third quarter, means the investment bank is sitting on a $650mn hole.

Expecting more bad news to emerge in the coming days.

Seeing PR sense behind latest News International events

rebekahbrooksThe announcement this morning that News International CEO Rebekah Brooks had resigned provoked near-universal applause on Twitter, from what I could see in my content stream. It was also reported in mainstream media around the world, illustrating quite clearly how significant this is beyond the UK.

This and related events today look like the result of some wise counsel that must include public relations advice by PR firm Edelman which was appointed by News Corporation on July 13 to provide "general comms support and public affairs counsel."

The phrase "fast-moving events" is nowhere more applicable at the moment than to what’s happening in relation to this still-unfolding story that began with the News of The World newspaper and illegal phone hacking, embroiling News Corporation – owner of News International – and its ambitions for building out its global media empire with a bid to acquire all of pay-TV satellite broadcaster BSkyB, a plan ultimately scuppered a few days ago.

At the heart of it has been the central cast of characters ranging from Rupert Murdoch to Prime Minister David Cameron and other politicians, to murder victims’ families and to the Metropolitan Police; and now to the USA and the FBI where allegations have surfaced about hacking into the phone records of families of 9/11 victims by NOTW journalists.

Beyond all, though, has been Rebekah Brooks, CEO of News International and editor of the newspaper during much of the time when the phone hacking is alleged to have occurred. If ever an individual was vilified in the media – mainstream and social – metaphorically pelted with rotten tomatoes in the marketplace of public opinion, and reputationally stoned to near-death, it is Mrs Brooks.

Add to this the situation just yesterday where Murdochs senior and junior declined an invitation to appear before the Parliamentary select committee investigating the phone hacking affair, resulting in a summons to appear next Tuesday.

Also add Rupert Murdoch’s interview yesterday in the Wall Street Journal (owned by News Corp) in which he largely dismissed the phone hacking affair as a minor issue, and you can see how outrage, disgust and genuine public anger would not diminish any time soon.

So add all this together and you have a strong sense of looming disaster, one of a train wreck about to happen, as my American friends might say, that presented a clear and present danger to News Corporation.

On the face of it, Brooks’ resignation looks like a final acceptance of the reality of what’s happening: her position has appeared increasingly fragile as each day passed and as revelations alleging dirty deeds continued to surface, notwithstanding the support her boss Rupert Murdoch has publicly given her.

Yet it looks to me as if a shift has occurred in the past few days, one that appears to show a better grip on reality. It’s marked by a number of little things that make a big picture, such as:

  • The turn-around regarding the Parliamentary select committee – the arrogance of James Murdoch’s initial response to the invitation by saying he wasn’t available is replaced by a more humble and willing response to the subsequent summons (although I expect cynics would argue that his options were a bit limited at this point).
  • The focus of James Murdoch’s announcement to employees of the appointment of a new CEO, not focused on the resignation of Rebekah Brooks, marks a not-so-subtle change in position that says very clearly that "solv[ing] the problems at News International relating to the News of the World" is a priority. The overall wording demonstrates some long-overdue humility along with clear and confident statements about the future of the company under new leadership.
  • News International is to "apologize to the nation" with a full-page advertisement in every UK national newspaper this weekend. This action was mentioned in the employee announcement, in which James Murdoch says, "We will follow this up in the future with communications about the actions we have taken to address the wrongdoing that occurred."
  • Rebekah Brooks statement to employees about her resignation also struck a humble tone that made her words seem more credible and believable. While the statement is unlikely to warm the hearts of her many critics, the statement is online and no doubt will be widely repeated and quoted from.

It may just be coincidence, of course, that some effective planning seems to have invaded News International’s and News Corp’s public relations and overall approach to communication since Tuesday. So my speculatory comments about the ‘Edelman effect’ may be just that: speculation.

Still, whatever the effect, a communication shift has occurred as this story of fast-moving events moves to another level and as the central cast of characters evolves.

[Update @ 5.30pm] As you’d expect in this age of click-and-share, the full-page apology ad that will appear in all national newspapers tomorrow is already openly available online. I’ve seen it at a number of places; the best location I found is AdAge Mediaworks which has an actual copy they posted on Scribd.

Rupert Murdoch ‘sorry’ ad

(If you don’t see the document embedded here, see it at Scribd.)

And here’s the text:

We are sorry.

The News of the World was in the business of holding others to account. It failed when it came to itself.

We are sorry for the serious wrongdoing that occurred.

We are deeply sorry for the hurt suffered by the individuals affected.

We regret not acting faster to sort things out.

I realise that simply apologising is not enough.

Our business was founded on the idea that free and open press should be a positive force in society. We need to live up to this.

In the coming days, as we take further concrete steps to resolve these issues and make amends for the damage they have caused, you will hear more from us.

Sincerely,

Rupert Murdoch.

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