Archive for July, 2010

What Is Your Company’s Tolerance For Risk…?

July 28th, 2010. Published under Enterprise risk management.. No Comments.

Michael D. Moberly   July 28, 2010

It’s common to hear experienced risk managers express the view that its impossible to eliminate all risk.  To that I say, perhaps it is possible, however the actions one would have to take – undergo to eliminate all risk would, for most, be far too draconian and require virtually no interaction which essentially renders the statement moot insofar as businesses are concerned.

First, it’s important to define ‘risk tolerance’ and the various ways in which it can be determined – assessed, i.e., by an organization’s:

1. Experience – the level of a company’s current knowledge pertinent to – necessary for the successful management of a particular risk.

2. Resiliency – the level of residual strength and/or asset fragility within a company’s base of financial, physical, or intellectual resources should a particular risk materialize or cascade.

3. Flexibility – the ability of an organization to positively respond (apply mitigation measures) to an array of (identified) risks in a timely manner to elevate the probability that a previously agreed upon (accepted) level of business operational continuity is sustainable should a particular risk actually materialize.

So perhaps the next logical question to ask is why should management teams, boards, and companies in general, tolerate risk?  The answer, in my view, is not so much that risk is an inherent aspect of doing business, rather, it’s that organizations tend to tolerate risk because:

1. The level of risk is deemed (assessed to be) so low in terms of probability, vulnerability, and criticality that specific treatment (risk mitigation initiatives) are neither appropriate or necessary given a company’s available resources.

2. The nature of the risk itself is such that there are no available treatments or perhaps the risk, should it materialize, falls outside the capabilities of an organization/company to actually mitigate.

3. The cost of risk mitigation (the treatment), including insurance costs, is excessive, relative to the benefits, making ‘risk toleration’ the only, or perhaps the most viable option.  Such circumstances often arise with risks that are assessed as being a low priority in terms of probability, vulnerability, and criticality.

4. The (business) opportunities presented (become available) outweigh the threat, i.e., the vulnerability, probability, and criticality should a risk actually materialize) to the point that a management team and board can justify (rationalize) assumption of the risk on behalf of the company.

(This post was inspired by the work of Dr. Marc Siegel related to organizational resilience.)

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

IP Education: A Requisite To Business Management!

July 27th, 2010. Published under Intellectual Property Rights, IP strategy.. No Comments.

Michael D. Moberly   July 27, 2010

Increasingly important questions for entrepreneurs and SME’s is the extent to which their management teams and boards are (a.) familiar with and making effective use of the intellectual property system, and (b.) if not, are there particular barriers that either prevent or inhibit them from doing so?

The larger question perhaps, according to Bill Payne of the Kauffman Foundation, is how many SME’s elect to not pursue conventional intellectual property (IP) protections, i.e., patents particularly, because they recognize, in advance, that they do not have the (internal) resources to rigorously defend their patent position(s) should challenges or disputes arise, or pursue the infringers and/or misappropriators that are all but certain to evolve?

Operational familiarity with IP has become, in my view, an essential business management skill set particularly among SME’s in all industry sectors.  Though, while creating and capitalizing on – exploiting innovation to achieve a business (competitive) advantage can become a key differentiator for a company, it can materialize generally only if a company’s management team and board have the necessary foresight to put in place best practices to ensure control, use, and ownership of the assets can be sustained, but not solely through subjective assumptions about the deterrent affects of conventional IP.

Where does this leave the 20+ million entrepreneurs and SME management teams and boards who are essentially faced with many, if not most, of the same complexities and challenges as their larger Fortune 5000 brethern, in terms of being able to effectively safeguard, utilize, and exploit their IP?  The reality is that SME’s, are often without the resources compared to their larger counterparts and find themselves managerially, administratively, and fiscally stretched insofar as overseeing their IP and the ability to accommdate the complexities and expense associated with IP processes and procedures.

It’s important to recognize also that we’re operating in knowledge-based global economies, in which 65+% of most company’s value, sources of revenue, and future wealth creation lie in – are directly related to intangible assets.  This makes achieving a certain level of familiarity and competency in IP management (oversight and stewardship) matters a necessary underlier to not merely achieving success and profitability, but sustainability!

It’s useful then, for SME management teams and boards to frame their IP (and intangible assets) as strategic business assets, not merely the product of a research activity to remain stagnant or hidden, and otherwise not put to good efficient use.

Unfortunately however, most higher educational (business management) programs and academic units approach intellectual property, patents particularly, as a narrow legal specialization only to be acquired through law school.  I hardly believe that’s how we should proceed to build and sustain a strong and sustainable entrepreneurial and SME pipeline.

(This post was inspired by IBM’s The Inventors Forum, Global Innovation Outlook project.)

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

 

Intangible Assets: The 900 Pound Overlooked Economic Gurerrilla…

July 26th, 2010. Published under Analysis and commentary, Intangible asset strategy. No Comments.

Michael D. Moberly   July 26, 2010

Among the regular readers of this blog, there’s probably a commonality many of us share, that is, when we attend/participate in a business meeting, we are inclined to look for the often times invisible, but nevertheless present, ‘900 pound gurerrilla’s’ that are being overlooked, and wonder why?

To be sure, there is a 900 pound economic gurerrilla in most every companies c-suite and board room that unfortunately is often ignored, dismissed, and overlooked, but still plays an increasingly integral role in and lays critical foundations relative to a company’s value, its sources of revenue, sustainability, and future wealth creation.  That 900 pound guerrilla I’m referring to of course, are a company’s intangible assets!

Reasons for expressing misgivings about and/or reluctance to really engage a company’s intangible assets are as varied as there are categories and types of intangibles.  Typically though, there remain a significant percentage of management teams and boards who, when they think about (company) assets, their inclination is to see primarily physical, or tangible assets such as property, equipment, real estate, accounts receivable, and perhaps various types of securities.  Presumably, those boards and management teams believe these so-called hard assets, i.e., ones that can be seen, touched, and are entered on company balance sheets, are the ones that really matter, and therefore remain, at least in their eyes, as the dominant (primary) means that drive and deliver company value and revenue.

Of course, the business realities and economic facts flowing from the knowledge (intangible asset) based global economies clearly convey something quite different, that is, 65+% of most company’s value, sources of revenue, and future wealth creation today lie in – evolve directly from intangible assets, not tangible assets. 

So, while my conversations with a cross section of management teams and boards, particularly in the small and mid-sized company arenas, reveal a general familiarity with intangibles, there’s little objective evidence, below the surface, that indicates there’s a deeper appreciation how intangibles have literally become embedded and integral to most company’s routine (business) operations, processes, and procedures insofar as they individually and collectively contribute to elevating (company) value, deliver competitive advantages, and serve a key sources/contributors to revenue.

There is another, very timely and relevant, explanation why some management teams and boards are not as receptive as they should (could) be relative to learning more about and seeking opportunities to more effectively utilize, exploit, and convert their companies intangibles into value and sources of revenue.  That explanation is, as the saying goes, ‘when you’re up to your hips in alligators, one may have forgotten the original goal was to drain the pond’. 

So, I hear some management teams and boards say ‘please don’t bother us with theoretical discussions about why we should pay more attention to intangible assets when our company ‘is up to its hips in alligators’ and fighting everyday for its financial survival, ala, the recession.

To that I say, intangible assets are not some theoretical concept.  They’re real, integral, and irreversible foundations to the knowledge (intangible asset) based global economies.  And, albeit I am a strong advocate of intangibles, now may be the perfect, perhaps even the best time for management teams and boards to seriously dig into the intangible assets their company is producing or has acquired and figure out how those assets can better serve their company versus remaining stagnant, un-exploited, and otherwide not delivering – producing their potential.

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

Mergers and Acquisitions: Covenants To Monitor Intangible Assets

July 23rd, 2010. Published under Intangible Asset Value, Mergers and Acquisitions. No Comments.

Michael D. Moberly   July 23, 2010

What do I mean by designing and executing monitoring covenant’s in merger and acquisition representations and warranties?   It’s somewhat akin to the the statement routinely misattributed to Peter Drucker, i.e., if it can’t be measured, it can’t be managed. 

So, similar to Druckers’ perspective, in M&A’s, if control, use, ownership, and value of about-to-be-acquired/purchased (intangible) assets of a targeted company are not monitored and found to be sustainable (pre and post transaction) then there’s a reasonable probability the desired outcomes and/or projected returns, synergies, and efficiencies, etc., will be significantly impaired, diminished, or left unrealized altogether.

It’s not that intangibles are particularly unstable in comparison to tangible or other types of assets.  Rather, it’s due to the fact that the contributory value and competitive advantages intangible assets can bring to a deal have become essential to its success.  But, in today’s globally competitive and highly predatorial business (transaction) environment, intangible asset value and competitive advantages can be rapidly undermined, erode, or irrevocably lost, if there are no monitoring (representation, warranty) covenants in place for oversight.

Conservatively, when 65+% of most company’s value, sources of revenue, and foundations for future wealth creation today lie in – evolve directly from intangible assets; it seems a ‘no brainer’ that in a majority of instances, the essence of an M&A, i.e., what’s really being merged or acquired, are intangible assets!

An effective way for M&A professionals then to increase the probability that the desired – projected returns will be achieved is to ensure that M&A planning and due diligence not be focused solely on a company’s balance sheet that tends to roll up intangibles into a single heading of goodwill.  Rather, decisions to merge-acquire or don’t merge-acquire should include the question, how fragile and sustainable are the intangible assets under consideration?  In other words, is asset value and materiality vulnerable to erosion or undermining prior to, or immediately following, deal closure which, in either instance, will adversely affect projected returns?

Again, in today’s M&A environment, a seller’s or acquisition target’s intangible assets carry a readily exploitable liquidity that outpaces and utterly disregards conventional intellectual property enforcements. This of course, elevates asset vulnerability to many different forms of internal-external compromise that serve as preludes to (asset) value erosion which can literally sabotage deals. 

If either occurs prior to M&A finalization, the value of the about-to-purchased or acquired (intangible) assets can quickly hemorrhage and sometimes ‘got to zero’.   At that point, M&A terms will certainly necessitate change based on a determination (assessment) of the extent of asset deterioration or whether the intangibles can rejuvenate to sustain the buyer’s original objectives.

To effectively mitigate such vulnerabilities-risks, its important for buyers and equity sources to have in place, a highly proactive ‘deal impact analysis’ process (capability), e.g., monitoring covenants.  Such (negotiated) covenants are intended to permit monitoring of key intangibles so that the parties can be alerted, in a timely manner, to any acts and/or events that adversely affect changes in the assets’ value or materiality.

If impairments or discrepancies arise, the terms may be re-negotiated as warranted without necessarily losing deal momentum, timing, or resorting to costly and time consuming dispute resolution options.  Most traditional forms of M&A due diligence still constitute ‘snap shots in time’.  That is, they do not provide buyers-sellers with the level of on-going monitoring that’s necessary to address the easily exploitable and nanosecond liquidity (value erosion vulnerabilities) now common in transactions in which intangibles are in play.

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

 

Organizational Resilience Standards and Stone v. Ritter: Is There Be A Connection?

July 22nd, 2010. Published under Analysis and commentary, Organizational resilience and business continuity/conti. No Comments.

Michael D. Moberly   July 22, 2010

In Stone v. Ritter (as they did in In Re Caremark and In Re Disney) Delaware courts brought attention to board and director oversight of regulatory compliance programs and company assets by stating…

 ‘boards must be kept apprised of and receive accurate information, in a timely manner, that’s sufficient to allow them and senior management to reach informed judgments about the company’s business performance and compliance with the laws…’ 

Some court decisions can be precedent setting with the arguments presented by the winning side replicated in the form of framing points for (oral, written) arguments in future (similar) cases.  The prevailing arguments in Stone v. Ritter being no exception, I presume will be replicated in other cases in which board-director fiduciary responsibility (liability) is at issue, e.g., assessing the effectiveness of board and director efforts relative to ensuring their company is compliant with certain regulatory mandates and how personally engaged they are in the oversight (stewardship, management) of their company’s compliance program.

A close and admittedly desirous reading of the Stone v. Ritter decision suggests the ruling may go a long way toward eliminating some of the ambiguities associated with board and director fiduciary responsibilities and liability by bringing clarity to what actually constitutes ‘board oversight’ of a company’s assets which presumably include, both the tangible and intangible variety.

It’s certainly not a stretch then, at least in my view, in light of the collective and recent mishaps of BP, Massey Coal, Toyota, Johnson and Johnson, etc., and the on-going legal wranglings, to anticipate that the Stone v Ritter decision is being closely reviewed with the not so improbable possibility that new litigation will be framed to extend Stone v Ritter concepts to now encompass the newly adopted ASIS/ANSI American National Standard on Organizational Resilience.  

It’s just not out of the real of possibilities to see litigation being brought by stakeholders, in fact they may be remiss if they did not do so, arguing board fiduciary responsibilities should now encompass the highly proactive  ‘organizational resilience’ practices as detailed in the ASIS/ANSI Standard.  That is, in lieu of putting more lipstick on existing business continuity and contingency approaches which remain largely reactive. 

My views are that the prudent ‘best practice’ norm for companies now, and for the foreseeable future, lie in organizational resilience programs that systematically identify and actively manage risks that can potentially hinder the achievement of a companies mission which are broadly congruent with the best interests of the public, should adverse events and/or circumstances materialize.

(Thanks to the work of Rebecca Walker in her paper titled ‘Board Oversight of a Compliance Program: The Implications of Stone v. Ritter’ for some additional insight.)

 The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

 

Improve Business Transaction Success By Recognizing Intangible Assets Are In Play!

July 21st, 2010. Published under Business Transactions, Intangible asset strategy. No Comments.

Michael D. Moberly    July 21, 2010

There are numerous reasons why a business transaction may under-produce or fail outright, e.g., not deliver the desired results or projected outcomes.  Some responsibility for a transaction’s failure or under-production lies, in my view, at the feet of management teams and boards who may not have given the consideration due, to what I believe, is the central, and perhaps greater question that has bearing on the outcome, e.g., ‘what’s really in play’?

While that question may appear esoteric, theoretical, or even irrelevant to some in the over-played sense of urgency attendant to many transactions, the answer to the question ‘what’s really in play’ in my view is much more relevant than some traditionalists and conventionalists are frequently inclined to believe or accept. 

Traditionalists and conventionalists are respectful euphemisms (descriptors) I frequently use to describe the array of stakeholders that influence a business community and the deals and transactions that occur, but, whose perspectives and approaches to executing transactions remain largely embedded in tangible-physical asset domains. 

I find, as I’m confident many readers of this blog do as well, traditionalists and conventionalists are frequently respected, experienced, and often successful business persons in their own right.  They remain skeptical however, for a variety of reasons, about the notion that 65+% of most company’s value, sources of revenue and future wealth creation today actually lie in intangible, not tangible assets, regardless of it being a well settled economic fact.  In that sense, they become ‘business development gatekeepers’ of sorts.

When considering or engaging a new transaction, be it a merger and acquisition, venture capital deal, strategic alliance, or a fairly straight forward buy-sell or licensing arrangement it behooves the party to frame the transaction by considering the question at some point during the engagement discussions and subsequent due diligence, ‘what’s really in play’?  

This means drilling deeper (intellectually and practically) into the question.  The response of course, must be much more than merely a spontaneous regurgitation of the (traditional, conventional) time honored rationale ‘we care about increasing revenues and making greater profits, otherwise, why else would the transaction even be considered’?

What’s really in play in a steadily growing percentage, if not most business transactions today, are intangible assets!  Thus, a significant factor in the ‘business transaction and due diligence equation’ is literally, the ability to effectively achieve (address) these key objectives:

1.  Identify and effectively exploit the key intangible assets embedded in the deal along with the attendant synergies and efficiencies. 

2. Sustain control, use, ownership of those key assets and monitor (pre-post transaction) their value and materiality.

As growing percentages of company value and revenue are directly linked to – evolve from intangibles, there’s a growing body of evidence, anecdotal and otherwise, that points to management teams and boards that are dismissive or neglectful of either of the above, transactions will surely be put on a road to experiencing significant, but unnecessary, and often irreversible challenges insofar as being able to capitalize on the intangibles that are already in place.

For traditionalists and conventionalists though, crossing that chasm between the tangible/physical asset (business) world to the world now overwhelmingly dominated-driven by intangible assets, truly and respectfully presents some understandable challenges to past practice, particularly with respect to accounting, reporting, managing intangibles.  But, regardless, that chasm must crossed intellectually and attitudinally, and, the quicker the better. 

And, once conventionalists and traditionalists have crossed that chasm and arrived ‘on the other side’ it’s essential that intangibles become fully and routinely integrated into the various equations in which transactions and deals are conceived, framed, and benefits/outcomes calculated.

 The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

 

Organizational Resilience: Implementing and Auditing The American National Standard

July 19th, 2010. Published under Organizational resilience and business continuity/conti, Uncategorized. No Comments.

Michael D. Moberly    July 19, 2010

I research and write (produce) the ‘Business IP and Intangible Asset Blog’ to provide insights and sometimes alternative views about protecting, managing, and delivering value from intangible assets.  My blog is directed primarily to company management teams, boards, entrepreneurs, researchers, and employees.  In that sense, each blog post, while sometimes inspired by the the work of others, is conceived and written in a respectful manner absent the influence of others.  Today’s post however, may appear to some, as constituting a deviation from those principles.

For example, this past week I had the pleasure (and enjoyment) of participating in and learning from a two and one half day seminar hosted by the American Society for Industrial Security International titled, ‘Organizational Resilience: Security, Preparedness and Continuity Management Systems – Requirements And Guidance For Use’.

Without equivocation, I can say my attendance/participation in the seminar was well worth my time and expense, especially in the sense of, upon completion of the seminar, being, quite literally, on the leading edge, of what I and others believe, particularly Dr. Marc Siegel, the seminars’ principle instructor, will be the standards’ relatively rapid rise in acceptance and integration by U.S. companies.

The program itself was appropriately framed by Siegel as encompassing a ‘comprehensive management systems approach for the prevention, protection, preparedness, response, mitigation, continuity, and recovery for disruptive incidents resulting in emergency, crisis, or disaster’.  Given that my business and professional interests focus almost exclusively on issues related to intangible assets and intellectual property, it was important too me that I be able to adapt much of the seminars’ content, i.e., the standards themselves, to be applicable to intangibles and IP.  

After all, its an economic fact – business reality that 65+% of most company’s value, sources of revenue, and future wealth creation today lie in – are directly related to intangible assets.  Thus, a seminar on organizational resilience must fully address intangible assets.  While the seminar produced many practical deliverables to attendees, Siegel clearly and consistently recognized how essential it was to convey the new standard embody intangible assets, not solely physical-tangible assets. 

As I pointed out in my July 15th post, the requirements and guidance (accompanying the organization resilience standard), particularly as conveyed through the experienced and global eyes of Dr. Siegel, is not merely a warmed over version of (conventional-traditional) business continuity and contingency planning which still retains, in many instances, a framework and overall approach that is more reactive than proactive.

Whereas organization resilience, as conveyed in the standard itself, as well as in principle and practice, is embedded with a singularly proactive mantra, especially in terms of its approach and execution through a ‘management system’.

To be sure, the recent and on-going challenges experienced by BP, Massey Coal, Toyota, and Johnson and Johnson, and others, are but a few examples of the increasingly essential role in which a properly designed and executed organization resilience program (that encompass the requirements and guidance noted in the Standard) would have likely made a significant difference not only in the disruptive event itself (that adversely affected each company) but, how the companies response following the event. 

It now seems self-evident that an organizations’ ability to quickly, efficiently, and effectively adapt to a change, whether they be changes in policy, market forces, environmental factors, and/or disruptive events (i.e., natural, intentional, or unintentional) by implementing adaptive and proactive strategies that are recovery oriented, can not be dismissed out of hand.

In todays global business environment in which risks are very much asymmetric and ‘coming at your company 24/7’, taking time to objectively examine the benefits of the organizational resilience standard and reflecting on your company’s organizational resilience posture, can indeed, be a worthy use of time for any management team, board, and their respective stakeholders.

It is in this regard, that I encourage readers of this blog to give strong consideration to pursuing this organizational resilence seminar and closely following the work of Dr. Siegel and ASIS International on this necessary and worthy endeavor.

 The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

What Is Organizational Resilience And What Does It Mean To Be A Risk Resilient Organization?

July 15th, 2010. Published under Organizational resilience and business continuity/conti. No Comments.

Michael D. Moberly   July 15, 2010

Becoming a risk resilient company encompasses three key elements:

1. Having management systems in place that link the control of and response to adverse and/or disruptive events to a company’s core mission through a strong sense of foreseeability and practical risk assessment.

2. Bringing conventional security and risk management systems into a balanced and synergistic framework to ensure a company is sufficiently adaptive and responsive to changes and risks within their business environment (internally, externally) that can impact their sustainability and/or survivability.

3. A culture that facilitates awareness and resistance, an immunity of sorts, to the affects of particular risks and/or adverse events which enables a company to return to an acceptable state of operational normalcy and performance in an acceptable time period should certain risks/threats actually materialize.

Operationally speaking, organizational resilience differs markedly from conventional security and/or risk management approaches due to its focus on (a.) preparedness, (b.) balancing the probability and consequences of risks, and (c.) shifting away from (risk management) being a primarily reactive activity to being a highly proactive, adaptive, and continually improving activity.

Organizational resilience is particularly well suited to the ‘systems approach’ with its requisite cross-disciplinary inclusive framework that compels stakeholders to identify and examine risks as independent variables relative to vulnerability, probability, and criticality.  This includes, for example, examining risks that may have a relatively low probability for occurrence but carry inordinately high consequences, i.e., potential for significant adverse cascading effects throughout an enterprise and its external stakeholders.

Some consider the ‘organizational resilience’ movement to merely be a re-packaged version of conventional business continuity and contingency planning.  Be assured, it’s not!  Much more to come on organizational resilience.

(This post was adapted from the work of Dr. Mark Siegel and the newly adopted American National Standard on Organizational Resilience.)

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

 

What Is An Intangible Asset Specialist and What Can They Do For Your Company?

July 13th, 2010. Published under Board oversight, Fiduciary Responsibility. 1 Comment.

Michael D. Moberly   July 13, 2010

I start with the premise that management teams and boards have a fiduciary responsibility to routinely and objectively ask, ‘is their company properly positioned, insofar as possessing the expertise and skill sets, to identify, unravel, develop, bundle, utilize, and extract as much value as possible from its intangibles, while simultaneously protecting and monitoring risks to those assets’ value, sustainability, and materiality’? 

As noted numerous times in this blog, the embodiment of managing and overseeing a company’s intangibles is the ability to sustain 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 quickly go to zero!

An intangible asset officer (specialist) then, can benefit a company by…

1. Providing on-going guidance to business units for managing intangibles, i.e., extracting value, delivering competitive advantages, and developing strategic plans for measuring asset performance, monitoring risks, value, and materiality.

2. Adding predictability to business transaction outcomes, projected returns, and exit strategies when intangibles are in play, by assessing their stability, defensibility, and value sustainability.

3. Conducting due diligence (assessments) to sustain the competitive advantages the assets bring and more fully exploit asset synergies and efficiencies.

4. Reducing the probability that project/deal momentum can be stifled by recognizing and mitigating circumstances that can (a.) ensnare and/or entangle the assets in costly and time consuming legal challenges, (b.) undermine/erode asset value and performance, and (c.) adversely affect asset reputation ‘risk points’, e.g., regulatory compliance, product/service quality, and/or security breaches, etc.

5. Improving the valuing, reporting, and accounting of intangibles and integrating same in (a.) asset development, (b.) company governance processes, and (c.) specialized asset management initiatives, i.e., knowledge management and balanced scorecard.

6. Building an ‘intangible asset’ company culture that’s effectively aligned – converged with a company’s mission and business objectives.

7. Designing comprehensive organizational resilience (continuity, contingency) plans that encompass mission essential intangible assets to provide quicker recovery following significant business disruptions or disasters.

8. Defining asset ‘suitability’ factors, i.e., asset recognition, valuation separability, transferability, life cycle, and risks.

9. Monitoring intangible asset value chains, i.e., the inter-connectedness between the production, acquisition, and utilization of intangibles vis-a-vis their contributions to company value, revenue, and creating and sustaining competitive advantages.

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

Chief Intangible Asset Officer: Has The Time Come?

July 12th, 2010. Published under Intangibles as strategic assets. No Comments.

Michael D. Moberly   July 12, 2010

Let’s not quibble, the answer to the question posed in this post’s title is a resounding yes, at least in my view.  Achieving consensus in favor of this notion however, will surely prompt challenges and resistance internally and externally from those not merely opposed to change, but those who find intangibles unwieldy due, in large part, to their lack of physicality.  

Stone v. Ritter, In Re Caremark, and In Re Disney however, are three cases that emphasize the importance 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 relevant issues that warrant board, director, and management team attention today.  Collectively, these cases are underliers to the economic fact that 65+% of most company’s sources of revenue, value, and building blocks for future growth and sustainability today lie in intangible assets.

Perhaps most importantly, these cases bring clarity to the necessity that boards, management teams, and directors be kept apprised of what’s going on inside their company in the form of a good faith duty and/or duty of loyalty to ensure their company has sufficient (asset) monitoring and reporting (compliance) systems in place to routinely and properly keep each appropriately apprised, i.e.,

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, etc.) to ensure each of the above occurs, they may well be (in light of these New Jersey court 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 a more ‘hands on’ position with respect to the stewardship, oversight, and management of their company’s 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.

Irrespective of these court cases, or a company’s size, revenues, value, or industry sector, it’s also likely that some management teams and boards will regard the (potential) contributions of an intangible asset specialist, ala chief intangible asset officer, as being unnecessary, and merely an additional impediment, to achieving a company’s (strategic) goals and objectives, in favor of retaining the more conventionally titled ‘c-suite’ positions in which intangible asset (management, stewardship, and oversight) responsibilities can be added. 

But, management teams and boards who elect to be dismissive of, or table this notion indefinately, without deliberation, would be doing so at their financial peril, because there is that pesky little economic fact – business reality that 65+% of most company’s value, sources of revenue, and future wealth creation today lie in – are directly related to intangible assets. 

So, when the proposition is framed in the factual context that increasingly larger percentages of a company’s value, sources of revenue, and future wealth creation lie in intangibles, management teams and boards are compelled…have a fiduciary responsibility to objectively ask, ‘is their company positioned, insofar as possessing the expertise and skill sets, to consistently and identify, unravel, nuture, utilize, bundle, and effectively and efficiently extract as much value as possible from its intangibles, while simultaneously protecting, sustaining, and monitoring those assets’ value and materiality’? 

So, instead of assuming satisfaction with the way things have always been done, or worse, assuming all things intangible are either legal or accounting decisions, not business decisions, management teams and boards globally, have fiduciary obligations to critically and objectively assess ‘has the time come’ for their company.  The economic (business) realities are certainly clear, i.e., the knowledge-based intangible asset economy, and it’s irreversible.

As management teams and boards drill down, sometimes ever so slightly, to reflect on how much of their company’s value, revenue, sustainability, growth, and future wealth creation are literally integral to – dependant on intangibles, the aforementioned economic (65+%) fact resonates (manifests itself) as an irrefutably strong fiduciary rationale for dedicating personnel to serve as stewards, overseers, managers, and monitors of a company’s increasingly valuable intangible assets.

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.