Archive for March, 2010
Michael D. Moberly March 29, 2010
Intellectual capital management is certainly not new. Numerous colleagues have long been respected thought leaders, strong advocates, and practitioners in this arena, Mary Adams (I-Capital Advisors) among others.
In simple terms, intellectual capital (IC) includes ideas, innovation, know how, skills, and also I believe, the understanding how to best use (exploit) those ideas, knowledge and skills for commercialization, profit, and competitive advantage. Unfortunately though, given the amount and rising levels of IC embedded in companies, there’s little evidence that management teams and boards consistently recognize or ensure systems are in place to effectively practice the latter on a broad scale to better serve their company’s interests.
My characterization of a company’s IC focuses on the aggregation of know how and skill sets that are embedded in the various processes and procedures used to produce, develop new, as well as improve existing, goods and/or services. In today’s increasingly knowledge-based economy, while IC is one of three, it is, in my view, the more significant underlier to a company’s profitability, success, and certainly, its sustainability.
It is essential though, that management teams and boards recognize that IC is generally not a permanently embedded fixture, rather IC is quite perishable, often transferrable, and certainly vulnerable to a range of risks. In other words, IC can best serve a company’s interests only if those specific elements that deliver value, revenue, and competitive advantage are distinguished and considered proprietary or possibly bundled for licensing or other profit-revenue delivering modes.
In most instances, at least initially, I advocate the prudence of putting specific practices in place to retain the proprietary status of designated IC to reduce the probability it would (purposefully, inadvertently, sureptitiously) enter the public domain that would cause or hasten its value being diminished or its competitive advantages be undermined.
Also, let’s be clear, IC is not synonymous with intellectual property, i.e., patents, trademarks, copyrights, etc. IC is, to be sure, an intangible asset, like its intellectual property cousin. Typically, most forms of IC are not eligible for conventional intellectual property protection. Thus, having processes and procedures in place to ensure its proprietary nature is sustained becomes all the more important.
Be assured, conducting periodic inventories and/or audits of intellectual property is no substitute for, nor does it equate with what’s necessary for managing IC assets in today’s globally competitive business (transaction) environments. And, with steadily rising percentages of company value, revenue, growth potential, and sustainability tied directly to the production and effective use of intangible assets, of which IC is one, the notion of dedicating an individual and/or team to be responsible for identifying, managing, using, and protecting (a company’s) IC is becoming a prudent business decision with a strong and defensible value proposition!
(Those interested in learning more about intellectual capital management are encouraged to visit the IC Knowledge Center.)
Michael D. Moberly March 26, 2010
Goodwill represents an intangible bond between a company, its products and/or services, and its employees, clients, customers, investors, suppliers, distributors, shareholders, and stakeholders, etc.
Of late though, there is evidence that some companies are opting, with more frequency and less (adverse) stigma, to play the so-called goodwill (impairment charge) write-off card under a variety of circumstances and for a variety of reasons.
Putting aside for the moment, the accountancy and tax upsides relative to goodwill impairment charges, my question is, what are, are there, or won’t there be adverse consequences and/or reactions at some point when companies opt to literally write-off large sums of their goodwill, or when their goodwill goes, figuratively speaking, to zero?
Are employees, clients, customers, investors, suppliers, distributors, shareholders, and stakeholders oblivious to this?, are their reactions neutralized?, do they care? Is it not an axiom of good business practice that goodwill represents a substantial and underlying factor to a company’s profitability and sustainability?
Quite understandably, if you are a stockholder in a company whose stock price plummets which the company in turn attributes (whole or in part) to diminished (impaired) goodwill and opts to write-off it off there are, intuitively, consequences. One of which is a stockholder now holds less value in the company today than they did yesterday which presents the stockholder with some unwanted options.
(This post was inspired and modified by Michael D. Moberly from a CFO.com article titled ‘Goodwill Hunting’.)
Michael D. Moberly March 25, 2010
Since the U.S. Court of Appeals for the Federal Circuit (In Re Bilski, 2008) affirmed the rejection of a business method patent claim and reiterated the machine-or-transformation test for patent eligibility, much has been written about (a.) how the the U.S. Supreme Court will rule, (b.) how that ruling will be interpreted, and (c.) how it will affect knowledge intensive industries.
Thus far, the pre-decision speculation has largely emanated from those who ‘have, or want to have a dog in this hunt’, e.g., professional entities who seek to position themselves to exploit the outcome, which ever way the Court decides. In most circumstances, and this is no exception, that’s simply good business practice.
Like others, I look forward to learning how the Court will ultimately rule in Bilski. However, my personal and professional anticipation of the Court’s decision is not foused solely on the patent eligibility of business process methods, rather on whether or how the collective affect of (1.) the pre-decision speculation, (2.) the Courts’ actual decision, and (3.) post-decision analysis and interpretation may serve to impede, stifle, dampen, undermine, or otherwise adversely change the course of the progress that’s been made to date with respect to management teams and boards recognizing the value propositions of and integrating intellectual capital and intangible assets in their strategic planning and decision making processes.
More specifically, will the Bilski decision adversely influence (a.) entrepreneur, investor, and R&D communities, and (b.) management teams and boards to push back from their heretofore growing interest and fiduciary responsibility focused interest in utilizing, maximizing, and exploiting intellectual capital and other forms of intangible assets?
I don’t believe this perspective represents a stretch or is beyond the realm of possibilities.
Michael D. Moberly March 22, 2010
This post is about competitive advantages. First, it’s important to recognize that a company’s competitive advantages (business differentiators) are, in fact, intangible assets. Second, in today’s globally predatorial, aggressive, and winner-take-all business (transaction) environment, a company’s competitive advantages must be durable. That is, their status, stability, fragility, defensibility, materiality, sustainability, and value should be routinely monitored and assessed relative to (a.) vulnerability to duplication/replication, and for (b.) protection and improvement.
I have found the following definitions beneficial insofar as helping management teams and boards frame- conceive their company’s competitive advantages…
1. they’re unique blends and/or collections of attributes, processes, assets, relationships, history, and even market conditions that a company exploits to differentiate itself, and thus create value. (Michael Porter).
2. they lie in the unique proprietary knowledge employee’s possess, and the special value that evolves from understanding of how to apply that (unique) knowledge that provides the real edge. (McKinsey)
Of course, in both definitions, the word ‘unique’ is, and should be the common framing point. But, with increasing frequency, sustaining competitive advantages is challenging for company management teams and boards, in part due to the realities that significant percentages of (a.) all new products, and (b.) business service improvements and efficiencies can be, and usually are, duplicated, replicated, or diffused to global competitors in briefer periods of time from the point they became operational. In other words, competitive advantages, like most other intangibles are consistently vulnerable and at risk!
As effectively conveyed by Ed Adkins (mystrategicplan.com) developing competitive advantages isn’t always easy or straightforward, because, in many instances, competitive advantages are developed (over a period of time) by recognizing and then nurturing a company’s strengths. In some instances, this longer internal process, can render them more difficult to replicate, or, at least not replicated as quickly.
Regardless, when 65+% of most company’s value, sources of revenue, foundations for growth and sustainability directly evolve from intangible assets, e.g. competitive advantages, ensuring they’re routine action items on management team and board agendas for oversight, will be beneficial!
Michael D. Moberly March 18, 2010
In today’s globally competitive and predatorial business (transaction) environment, company management teams and boards should consistently ‘be in the hunt for’ innovative ways to create (additional) value, revenue, and competitive advantages through better identification, utilization, leveraging, and exploitation of their intangible assets.
A company’s intangible assets should first be examined individually, and secondly, to determine/assess if marketable commonalities and/or combinations exist that could be bundled to expand venues in which the assets can be utilized, and thereby add sources of revenue and opportunities for growth. That’s a good thing!
To fully achieve this almost surely profitable exercise, in my judgment, and to do so consistently, requires an additional element beyond single training seminars. That additional, but often overlooked element is to create a consistently alert, articulate, innovative, and supportive ‘company culture’ that’s operationally attuned to intangible assets, i.e., (a.) what they are, (b.) how they’re produced, and (c.) how they contribute to, underpin, build, and sustain a company’s value, sources of revenue, and growth opportunities.
A company culture is a shared system of values that defines what is important (to a company) and contains certain norms and beliefs that convey appropriate and accepted attitudes and behaviors (for a company). In most instances, a ‘culture’ will emerge – be exhibited and observable as management teams and employees (collectively) recognize the beneficial (economic) outcomes that can accrue as they engage and solve problems through those collectively shared norms, values, beliefs, and attitudes which accrue in the form of greater efficiencies, competitive advantages, and reputational value. (Adapted by Michael D. Moberly from Dr. Edgar Shein)
A well oriented company culture gives permancy and depth to (a.) recognizing the importance of intangible assets that exist in most all company activities and processes, (b.) helps employees recognize and distinguish those intangibles, and (c.) understanding and confidence in tweaking and nuancing those intangibles to benefit themselves and the company, e.g., building, strengthening, and sustaining competitive advantages and customer and supplier relationships.
Michael D. Moberly March 16, 2010
While in London recently where I served as one of the keynote speakers for the European Information Asset Protection Conference, I secured a meeting with officials of the British Venture Capital Association (BVCA) which serves as UK’s public policy advocate for the private equity and venture capital industry.
A significant percentage of my discussion with BVCA officials evolved around comparing and contrasting UK’s VC industry with the US, and the so-called ‘silicon valley’ model which my hosts did not advocate tyring to replicate in the UK.
Our discussion also explored possible differences between US and UK entrepreneurs. One such difference expressed by BVCA was that some would be UK entrepreneurs may be more reluctant to start an entrepreneurial business compared to their US counterparts due to stronger personal concerns about the consequences of (business) failure. It was said that a contributing factor to this perception lie in UK bankruptcy laws that are not considered particularly entrpreneur friendly. That is, company and personal bankruptcies in the UK are generally considered indistinguishable, therefore a combination of business failure and bankruptcy may discourage, in a entry barrier context, more entrepreneurial activities because it elevates-carries a sense (probability) of personal failure.
While UK’s VC industry is generally considered to be the most advanced in the EU, BVCA officials suggested there are relatively few (UK-based) investors with the financial capability to fund promising (innovative) companies through each stage of their development. If reality, this contributes to the perception that UK’s VC industry focuses more on later stage and more established companies vs. start-ups and early stage companies.
In that regard, the BVCA concedes there may be structural problems (within UK’s VC industry) that need to be addressed to ease the flow of equity capital into early stage and innovation intensive companies particularly. With that, the BVCA is exploring-seeking ‘the most suitable type and/or correct mixture of interventions.
Michael D. Moberly March 15, 2010
Generally, my consultancy focuses on identifying ways small and medium size businesses can profit from the intangible asset and intellectual property side of their business. During initial meetings with management/leadership teams I address, among other things, the key objectives of an engagement, i.e., elevate asset performance, unlock and enhance their contributory value including revenue and sustainability, and the value proposition that will accrue through more effective and efficient oversight and use of intangibles.
While the initial engagement meetings are with business management/leadership teams and/or board members, its routine, as well as very prudent, for them to pose skeptically oriented questions, especially if they perceive, and they often do, (a.) any subjectivity in the characterizations of deliverables, or (b.) intangibles being portrayed as a silver bullet and/or quick fix to create heretofore un-utilized sources of value, revenue, competitive advantage, and sustainability.
By far, the most common demands expressed by management/leadership teams during initial (pre) engagement meetings are, (1.) prove it to me with examples, and (2.) where’s the value proposition?
These types of questions are warranted, should be expected, and the answers should not be overlooked because a consultant presumes the answers are self-evident. Remember, all management/leadership teams and boards do not yet recognize or have yet to act on the economic fact that 65+% of most company’s value, sources of revenue, competitive advantages, sustainability, and building blocks for future growth evolve directly from intangible assets.
Therefore, the consultant must have the experience to articulate a strong and compelling repertoire of relevant, but most importantly, real world, trustworthy, and value proposition-based responses to those important questions. Absent that, an intangible asset management and protection consultant should not become optimistic about receiving a (second chance) follow-up meeting.
But, I often believe, respectfully so, the way management/leadership team members frame those questions:
1. are not so much oriented to intangible assets specifically as they evolve from one-size-fits-all templates for questioning vendors regardless of the product or service being pitched, and also, they
2. underly various levels of misunderstanding and operational un-familiarity with either the existance or utilization of the intangible asset side of a business.
I engage, on a daily basis, the real world of small-medium businesses, which include founders, owners, management teams, and boards who, in the midst of this recession, are personally skeptical about ‘quick fixes’ or ‘silver bullets’ particularly when their credit lines have been marginalized, if not cut off, and lending sources are moot to their requests and even more likely to dismiss out-of-hand even the best articulated and structured proposals for (intangible) asset monetization or asset backed lending.
Small and medium-size businesses in the U.S. however, are 20+ million in number, deliver approximately 39% of the GDP, and reportedly produce two and one half times as much innovation per employee compared to larger firms according to various sources and studies including the Small Business Administration. The bottom line is, small and medium sized business produce (possess) intangible assets that deliver value, revenue, sustainability, and serve as a foundations (viable building blocks) for growth and future wealth creation. It’s time to believe it and act on it!
Michael D. Moberly March 11, 2010
Within the university research community, there remain spirited and polarizing debates about the openness in which research is conducted, that is, the freedom and ability of researchers to disseminate, communicate, collaborate, and publish at will, which incidentally, have long been recognized as the hallmarks of university-based research.
On one side of that debate stand those who favor retaining those legitimate hallmarks of academic freedom, while on the other side of that debate stand those who encourage safeguards be put in place to limit, set parameters for, if not prohibit some of the at will – discretionary freedoms conveyed in the former view, particularly in instances in which the research will likely produce special insights, outcomes, and findings that potentially carry significant (business) competitive advantages that may extend not just to the primary corporate (research) sponsor, but eventually to other U.S. companies and organizations in that sector.
There’s nothing particularly new about these diametrically opposing views, as they have existed in essentially the same format since the 16th century. Regardless, whichever side of this argument one may be inclined to embrace, my experience in this arena suggests there is little middle ground on which to frame – reach consensus, bar one. That is, the opportunity to objectively and dispassionately factor into the university-corporate research equation the realities embedded in today’s intangible asset based, hyper-competitive, aggressive, increasingly predatorial, and winner-take-all global R&D environment.
So, the question may be, do these (aforementioned) realities support the inclusion of specific safeguards to the university-corporate research equation beyond those that predominantly IT (security) oriented? The objective is to prevent-reduce the vulnerability-probability that the sponsored research will be vulnerable to insider theft, infringement, or the ‘always on’ and incredibly sophisticated global business/competitor intelligence operations. In other words, acts that, if even reasonably successful, will dilute and/or impair the research’ strategic value to its sponsor and/or allow, inadvertently or otherwise, competitors (globally) to gain advance insights that permit them to achieve economic, competitive, and market entry advantages.
Walk me through-a-day-in-the-life of university research…An analogy may be useful as a potential starting point to advance this principled tug-of-war. For example, when company representatives go before a venture capital firm to seek funding, one of the series of questions (scenarios) a VC will invariably pose to obtain a better sense of the usefulness and viability of the product or service being pitched, is to ask a company representative to ‘walk me through’ a-day-in-the-life of a (target market) company in which the product or service is absent. And then ‘walk me through’ a-day-in-the-life of that same company after the product or service becomes operational. The VC’s follow-up questions will then be framed as w I see a difference?, will the company be better off?, if so, what and how will those differences manifest?, and how will those differences be exploitable to benefit the company?, i.e., to become more profitable?, gain/retain customers?, create efficiences?, improve morale?, etc.
It’s not inconceivable that a comparable, but objective and dispassionate ‘walk me through a day in the life’ approach would be useful to advance the time honored debate about university research. Key (objective) questions that could be posed then to researchers/scientists are (1.) consider their ability to sustain unchallenged control, use, ownership, and value of their research throughout its value-life cycle, and (2.) what do they, their university, and research sponsor consider to be minimum foundation(s) for retaining viable options for (future) licensing and/or technology transfer?
(In addition to being an information asset protection specialist, Mr. Moberly remains a consistent researcher and consultant on these matters which began while he was a member of the faculty at Southern Illinois University at Carbondale from 1982-2002.)
Michael D. Moberly March 8, 2010
In Stone v. Ritter (but also, In Re Caremark and In Re Disney) Delaware courts drew attention to board/director oversight (management, stewardship) of compliance programs and company assets.
As we know, court decisions carry the potential to serve as, if not broad precedents, at least as a basis for framing future tactical – strategic (litgation) arguments in similar cases. The courts’ opinion in Stone v. Ritter, in my view, carries such potential particularly when board/director liability is at issue relative to the effectiveness, and even perhaps questioning how actually engaged boards’ were, in the oversight (stewardship, management) of a company’s compliance programs.
An inferrence I drew from reading the court’s decision (Stone v. Ritter) and Rebecca Walker’s fine paper titled ‘Board Oversight of a Compliance Program: The Implications of Stone v. Ritter’, is that Stone will come to be viewed (applied) not so much for its specific focus on board oversight of compliance programs per se, as it will for bringing operational clarity to the definition of ‘board oversight’. That is, describing the key elements – what constitutes (basic requisites of) oversight (e.g., stewardship, management) of a company’s assets, and by extension, its intangible assets.
And, when 65+% of most company’s sources of revenue, value, and building blocks for future growth and sustainability lie in – are directly related to intangible assets, bringing operational clarity to this increasingly critical arena is a good thing! Particularly, that is, when the elements, as outlined below, will surely not be lost on, or overlooked by plaintiff’s counsel.
Integral to this of course is enterprise risk management (ERM) and its perspective of being ‘proactively defensive’. Therefore, company management/leadership teams, legal counsel, and boards/directors in general, would be well served by becoming familiar with these elements to position themselves to more effectively address – meet boards’ (fiduciary) duties, i.e.,
‘…ensuring the board is kept apprised of – receives accurate information in a timely manner that’s sufficient to allow it and senior management to reach informed judgments about the company’s business performance and compliance with the laws…’ by
1. Expanding the type of information that boards receive.
2. Scheduling meetings with members of the management team to inquire about:
a. how the company’s (internal, external) reporting system is structured
b. the company’s investigation policies relative to suspected incidences of (internal, external) misconduct
c. employee perceptions of the company’s reporting – compliance – audit programs, and sufficiency of employee training in this arena.
3. Structuring the company’s reporting (compliance) programs to include sufficient resources and authority for effective execution.
4. Examining the manner in which the company actually conducts risk assessments, prioritizes its risks, and actually addresses (prevents, mitigates) those risks.
Michael D. Moberly March 4, 2010
Stone v. Ritter, In Re Caremark, and In Re Disney are three cases that emphasize the importance of and provide practical context to board/director (fiduciary responsibilities) for the oversight, management, and stewardship of company assets, with specific implications to intangible assets and intellectual property.
Yes, these are Delaware cases, and yes, they are 2006 and 1996 decisions respectively, but they present timely and relevant issues that warrant board, director, and management team attention. Collectively, these cases go to the very heart of the increasing number of intangible-IP asset driven (knowledge-based) businesses. That is, today, 65+% of most company’s sources of revenue, value, and building blocks for future growth and sustainability lie in – are directly related to intangible assets.
Also, these cases, among other things, bring clarity and specificity to board’s-director’s being kept apprised of and/or knowing what’s going on inside their company. That is, the extent and parameters in which boards/directors have a good faith duty, even perhaps duty of loyalty, to ensure (company) monitoring and reporting (compliance) systems are not merely in place (on paper), but they were specifically designed and now function to routinely and properly apprise senior management and boards:
a. with timely and accurate information, that is sufficient to allow them (within their respective scope) to
b. reach informed judgements concerning a company’s compliance with law, and business performance.
In other words, today, absent specific efforts (by boards’, directors’) to ensure each of the above occurs, they may well be, (in light of the aforementioned cases – decisions), failing to satisfy their duty to be reasonably informed about the company and therefore, be held personally liable for problems that arise.
While attempting to hold directors (personally) liable for the misconduct of (company) employees, may be one of the most difficult theories in corporation law which a plaintiff might hope to prevail, it is nevertheless, essential, in today’s extraordinarily competitive, aggressive, predatorial, and ‘winner-take-all’ (global) business and transaction environment, that boards, directors, and management teams assume (accept) a more ‘hands on’ view of their stewardship, oversight, and management responsibilities relative to their company’s assets, particularly, intangible assets.
Why?, because in cases such as Stone v. Ritter, In re Caremark, and In re Disney, important and necessary information failed to reach the board because of ineffective internal (company) controls and regular monitoring of those controls. So, what’s the significance and (potential) applicability of these cases to company boards, directors, and management/leadership teams in general?
Most likely, its that each may/could be held (personally) liable for damages resulting from legal violations committed by employees, if there’s a failure to, (a.) implement reporting or information systems or controls, and/or (b.) regularly monitor such systems.
As noted numerous times in this blog; integral to – underlying board, director, and management team stewardship, oversight, and management (fiduciary) responsibilities is the ability to sustain (protect, preserve) control, use, ownership, and monitor the value and materiality of a company’s (intangible) assets. If the latter does not occur, or fails, little else matters, because asset value may quick go to zero!
(Mr. Moberly adapted this blog post from the work of Rebecca Walker of Kaplan & Walker.)