Archive for April, 2012

Risk Intelligent Company Culture: A Valuable Intangible Asset!

April 26th, 2012. Published under Intangible asset focused company culture., Intangibles as strategic assets, Value Propositions. No Comments.

Michael D. Moberly   April 26, 2012

This post is not about regurgitating the requisites for achieving a risk intelligent company, rather, its how to develop a sustainable risk intelligent ‘company culture’!

Unconventional approaches to risk management make sense today, says Rick Funston (Principal, Deloitte).  Risk intelligence, he says, is the ability to effectively distinguish between two types of risks, i.e., the risks that must be…

  • avoided (for a company) to survive, by preventing significant losses or harm, and
  • taken (in order for a company) to thrive by gaining competitive advantage.

Risk intelligence, Stephen Wagner and Rick Funston state in their appropriately titled book ‘Surviving and Thriving in Uncertainty: Creating the Risk Intelligent Enterprise’ embodies the ability to translate the above distinctions into better and more practical business decision making and actions to improve company’s:

  • resilience to adverse (risk) events/acts
  • agility to recognize and take advantage of business opportunities in which some level of risk is present.

An initial and important step toward developing a ’risk intelligent company culture’ is recognizing that risk is not solely or exclusively an external phenomena, i.e., all risk does not originate outside a company.

According to Deloitte’s, The People Side Of Risk Intelligence: Aligning Talent And Risk Management, risk virtually touches every aspect of employee (HR) management, and therefore, employees affect virtually every aspect of risk management. That appears to be the makings of a fairly substantial value proposition basis for ‘kick starting’ a intelligent company culture.

So, a second, and equally important step toward achieving a risk intelligent company culture is recognizing that a company’s value can be favorably affected by integrating – merging risk management and human resource management. The rationale for doing this, in my judgment, is embedded in the reality that a significant percentage of (company) risks actually evolve from – are inherent to employee behaviors, attitudes, and actions, which includes, Wagner and Funston add, management teams and boards.

Effective risk management, the Deloitte report suggests, and I might add, a risk intelligent company culture, commences at the point in which the following converge, i.e.,

Risk Governance – how a company (a.) treats risk, (b.) whether and/or how it assumes responsibility for risk oversight, and (c.)  how it incorporates (factors) risk in its strategic decisions and planning…

Risk Infrastructure Management – whether a company’s management team understands how to design, implement, monitor, and sustain an effective risk management program relative to the products or services produced and the type/nature, and locations of its business transactions…

Risk Ownership – whether a company’s employees and management team understands what their risk identification and mitigation responsibilities actually are, i.e., whether they internalize some) responsibility and/or assume some level of ownership for identifying, measuring, monitoring, and reporting risk…

In light of the economic fact that U.S. businesses lose an estimated 7% of their annual revenue to various forms of occupational fraud, notwithstanding losses attributed to intangible (IP) asset misappropriation, infringement, product counterfeiting, etc., a well-managed risk intelligent workforce can be a valuable (intangible) asset for any company.

A good starting point, say Wagner and Funston is to critically assess a company’s ‘unwritten rules’ relative to…

  • what (employee) behaviors are actually being rewarded by applying these ‘unwritten rules’?
  • do all employees, including management team and board, understand the company’s risk management priorities, objectives, and the strategic reasons behind them?
  • are company – employee incentives aligned with the company’s risk management priorities?

In a risk intelligent company, management teams and boards assume an obligation to understand what the proverbial ‘unwritten company rules’, i.e., what they are and how they’re being interpreted-executed by employees.  One does not have to look far to see the adverse consequences – effects on companies when there is a strong (under-the-radar) operational reliance on ’unwritten rules’ as to how things actually get done and how, or if, the risks associated with those ‘unwritten rules’ are being managed?  So, analyzing the responses to the above questions insofar as how they may influence and/or perpetuate a company’s propensity to avoid or engage in risk taking is important.

Obviously then, becoming more intelligent (and objective) about the persistent, embedded, and asymmetric risks most companies routinely incur in a global-based economy and business transaction environment, is an important prelude to creating a risk intelligent company culture.

Management teams and boards, in my view, must assume a responsibility for elevating and cultivating a company-wide awareness of risk that fosters risk intelligent behaviors at all levels, which begins by:

1. adopting a common definition of risk that’s in accordance with national standards and best practices as well as being company specific.

2. clearly defining the roles, responsibilities, and authority (for managing and monitoring risk) with appropriate levels of transparency.

Lastly, it’s essential to recognize, insofar as developing a ‘risk intelligent company culture’ that (a.) a change in (company) culture generally follows a (employee) behavior change, and (b.) culture and behavior changes are less a product of formal risk policies, controls, and pronouncements, than they are the result of effective incentives and rewards.

This post was inspired by and adapted by Michael D. Moberly from a paper produced by Deloitte titled ‘The People Side Of Risk Intelligence: Aligning Talent And Risk Management’ and a fine book authored by Stephen Wagner and Rick Funston, appropriately titled ‘Surviving and Thriving in Uncertainty: Creating the Risk Intelligent Enterprise’.

Risk Tolerance: Where Does Your Company Stand?

April 25th, 2012. Published under Enterprise risk management., Organizational resilience and business continuity/conti. No Comments.

Michael D. Moberly    April 25, 2012

In my relatively small niche/corner of the intangible asset business world, it’s quite routine to engage experienced and seemingly successful management teams and risk managers who cavalierly express the view that it’s impossible to eliminate all (business) risk.  My response to such perspectives is usually to politely hedge a little by suggesting it is possible!  However, and here comes the hedging part, the resources a company would have to devote and the ultra-restrictive environment a ‘risk free’ business would necessitate, i.e., no external interactions or emanations are just two examples. I know of no company that would agree to such aggressive tactics because they could no longer be viable nor profitable and their intellectual, relationship, and structual capital (intangible assets) would be of little, or no value.

My experience also suggests most company’s ‘tolerance for risk’ (a.) varies, (b.) is largely subjective, (c.) is often influenced by industry sector and the products and/or services being produced, (d.) management team, c-suite, and board perceptions/beliefs about business risks (usually evolving from prior experiences and/or anecdotes), and (e.) locations of and interactions with a company’s primary markets, i.e., customers/clients, supply chains, and other stakeholders.

According to Dr. Marc Siegel, there are ways to measure and assess a company’s tolerance for risk which is dependent on their…

1. Experience, e.g., the confidence level held by a company’s management team achieved by their familiarity with current and over-the-horizon risks, coupled with their perceived ability to effectively manage (prevent and/or mitigate) such risks.

2. Resiliency – e.g., if or when a significant (business) risk or disruption occurs, are there policies and practices in place to (a.)mitigate/minimize the criticality posed by the risk, and (b.) rapidly return the company to a state of operational and financial/revenue normalcy in a reasonable time frame, in other words,  its resiliency. Achieving company resiliency also includes minimizing the vulnerability, fragility and/or loss of  intangible assets, particularly competitive advantages, for the duration of the risk event.

One question I often pose to management teams focuses on how they presumably achieved concensus to accept or tolerate a certain level of risk relative to a specific transaction, new venture, strategic alliance, etc.? The answer I tend to get when I pose such a question is the proverbial ‘risk is an inherent feature of doing business and all successful business persons are inherently risk takers’. I analyze risk a little differently in terms of why management teams, boards, and c-suites may be inclined to tolerate certain (business) risks and not others. It’s usually because the…

  • level of risk is generally subjectively measured/assessed to be low in terms of vulnerability and probability, but the cost of mitigation through risk transfer, etc., may exceed potential (prospective) benefits, making self-insurance and elevated risk tolerance appear to be the prudent option.  Such circumstances often arise with risks that are assessed as having a low priority in terms of probability and vulnerability, but extraordinarily high in criticality.
  • asymmetric nature of business risks, i.e., their magnitude, frequency, criticality, and cascading potential, should they materialize, coupled with the type of products and services a company produces, is beyond the capabilities of most to consistently prevent or mitigate.
  • company’s anticipated/projected business opportunities associated with assuming a certain level of risk, outweigh risk exposures to the point that a management team can justify/rationalize proceeding with a particular transaction or initiative and therefore assume a substantial portion of the risk..

(This post was inspired by the work of Dr. Marc Siegel and his work related to organizational resilience on behalf of ASIS International.)

Cyber Security: It’s Not Synonymous Wiith Safeguarding Valuable Information-Based Intangible Assets!

April 24th, 2012. Published under Intangible asset protection, Systemic Risk. No Comments.

Michael D. Moberly    March 24, 2012

Information asset protection and cyber security policies and practices must be collaborative and cross-functional!

The attention the private sector and government agencies give to ‘cyber threats, security and warfare’ is well warranted.  There should be no question about the cascading effects and infrastructure havoc that deliberate and massive cyber attacks could create.  Identifying the best strategy and/or practices companies and governments should engage to address this challenge, is, of course, where much of the debate still lies.   That is, the U.S. remains somewhat distinctive from most other countries because our key pillars of infrastructure are generally privately owned and operated, apart from direct government control.

From an information asset protection practitioners’ perspective however, the narrative on such an important and potential catastrophic subject is being, in my view, too narrowly framed and perhaps overly influenced by an IT – computer security orientation.  Doing so, leaves little or no recognition for protecting critical – sensitive (private sector and/or government) information that exists in formats other than electronic bits and bytes. This, seemingly prevailing, but misunderstood perception about where and how valuable/sensitive/classified information is housed and safeguarded with respect to critical pieces of U.S. infrastructure creates its own sets of challenges.

By framing (public, private sector) information protection – security policies and practices primarily or solely through a cyber-attack lens, which, make no mistake, is serious and warrants our full attention, in my judgment tends to give short shrift to the economic fact that 65+% of most company’s value, sources of revenue, sustainability, and ’building blocks’ for growth evolve directly from (information-based) intangible assets today, e.g., a company’s know how, intellectual property, competitive advantages, brand, reputation, image, goodwill, etc.  In other words, an organization’s most valuable information assets exist as intellectual capital and thus may not be necessarily found or housed in computer and IT systems.

Information protection policies and practices dominated by an IT or cyber (risk, threat) orientation tends to minimize or even over shadow the  reality that most organizations today operate in an extraordinarily competitive and predatorial knowledge-intangible asset based global economy.  In such an irreversible global business (transaction) environment where information is acquired, processed, and disseminated in nanoseconds, safeguarding and securing valuable information-based intangible assets should not be conceived nor practiced solely through an IT – cyber security perspective.  Instead, responsibilities for safeguarding proprietary, mission critical, and/or classified information to counter and/or sustain reasonable infrastructure operation normalcy must be embedded in our respective orientation, regardless of the format which that information exists or how it is stored which increasingly is in the form of intellectual capital.

Today, information asset protection and cyber security policies and practices must be collaborative and cross-functional initiatives.  As information asset protection specialists know all too well, proprietary – sensitive business information generally percolates throughout a company or organization and is not strictly confined or limited to what is accessible solely through one’s laptop, desktop, or ‘from the cloud’.  In other words, mission essential and value/revenue producing information-based intangible assets exist as intellectual, human, and structural capital and organizational capability, most of which are necessarily conducive to being reduced to electronic bits and bytes.

Information safeguard policies and practices that infer, by having a dominant IT – cyber security orientation, i.e., all valuable, important, and proprietary information (a.) evolves from, (b.) is stored in, and/or (c.) is backed-up by an IT system, can send a misleading message, e.g., if an organization’s IT system is proclaimed to be secure, presumably the organization’s valuable, sensitive, proprietary and competitive advantage information ia also be secure, which we know is not the case.  Unfortunately, in today’s increasingly predatorial and incessently thirsty global environment for information that’s a message no organization – company should accept carte blanc.

For the still unconvinced, try examining the numerous, readily accessible, and quite simple (online) ‘roadmaps’ to an organization’s crown jewels, e.g.,  listening to cell phone conversations in hotel lobbies and airport lounges, glancing at the laptop screen of the person seated next to you, or view social media pages and profiles of key employees and/or their families.  In these venues, an economic, competitive advantage, and/or national security adversary can hear, observe, and analyze content, much of which is outside the conventional cyber (computer/IT) security arena. .

It is certainly not my intent to be dismissive about the absolute necessity to rapidly identify, assess, and successfully and consistently thwart the very real risks and threats posed by cyber-attacks which, as most realize, can target specific pillars of the U.S. infrastructure, i.e., banking, healthcare, transportation, energy, defense, first responders, etc.  Having effective defenses against cyber-attacks are an essential ingredient to our national and economic security and sustainability.

But, it’s equally important to recognize that both (cyber) terrorist organizations and economic/competitive advantage adversaries can acquire, with varying degrees of ease, a single company or organization’s most valuable and treasured trade secrets and competitive advantages and literally wreak economic, market, and thus a comparable level of infrastructure havoc, one company or one organization at a time. As former FBI Director Sessions is credited with saying, ‘our economic security equates with our national security’!

Intellectual Capital: Managing and Safeguarding…

April 23rd, 2012. Published under Analysis and commentary, Intellectual capital management.. 1 Comment.

Michael D. Moberly     April 23, 2012

There are countless companies that have executed well intentioned initiatives to manage and safeguard their intellectual capital (IC).  There is nothing particularly new here.

An important driver of this elevated and worthy interest in intangibles is that 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability today evolve directly from intangible assets, one of which of course is internally produced or acquired IC.

IC represents the value employees provide to a company or client by applying their skills, knowhow, expertise, and the unique understanding of how best to use (exploit) that IC to create efficiencies, commercialization opportunities, and/or generate revenue and competitive advantages.

Let’s be clear at the outset though, IC is not synonymous with intellectual property, i.e., patents, trademarks, or copyrights.  True, intellectual property is generally composed of intellectual capital.  IC however, standing alone, is not eligible for conventional intellectual property protections unless it would be internally designated as a trade secret. Thus, having processes and procedures in place to ensure IC’s proprietary nature is preserved becomes all the more important.

IC also includes:

  • Human capital which is a company’s combined (employee) capability for solving a company’s (business) problems and how effectively a company uses its employees as measured by creativity and innovation.  Human capital is inherent in most employees and cannot necessarily be ‘owned’ (in a conventional sense) by a company other than through non-compete and non-disclosure employment agreements.
  • Structural capital which consists of a company’s supportive infrastructure, processes, and (proprietary) databases, etc., which collectively enable human and intellectual capital to function (more) effectively through the utilization of certain hardware, software, information systems, processes, intellectual property, and a company’s image.

In some settings, structural capital can be further categorized as…

  • Organizational capital, e.g.., a company’s operating philosophy and systems for leveraging and/or maximizing its capability…
  • Process capital, e.g., techniques, procedures, and programs used to implement as well as enhance the delivery of goods and services…
  • Innovation capital, e.g., intellectual property and other forms of intangible assets…
  • Relationship capital, e.g., readily identifiable items such as trademarks, licenses, franchises, and customer/client interactions and relationships.

Unfortunately however, existing research – studies indicate that management teams, c-suites, and boards generally fall short of (a.) recognizing all of the IC held within their firm, (b.) the various formats IC can manifest itself, and (c.) ensuring effective processes – procedures are in place to counter, prevent, and/or mitigate the growing array of risks, threats, and challenges associated with safeguarding – managing (sustaining control, use, ownership, and monitoring value and materiality of) intellectual capital.

My professional interest in company’s IC focuses on those aspects which are – have become embedded in a company’s processes and procedures to produce, develop new, and/or improve existing goods and/or services. In today’s increasingly knowledge (intangible asset) based global economy, IC in my view, represents the more significant of a company’s ‘building blocks’ insofar as its ability to solve problems, achieve profitability, and contribute to sustainability.

IC, in my view, can best serve a company’s tactical and certainly strategic interests only if those aspects that contribute to value, innovation, problem solving, revenue, and competitive advantages are designated as being proprietary, effectively safeguarded, or possibly bundled for licensing or other profit-revenue delivering modes.   Company management teams and other business decision makers must recognize IC is a perishable, vulnerable, and transferrable (intangible) asset (commodity).  That is, it can ‘readily walk out the door with employees’.

In most instances, I encourage company management teams to put specific practices/procedures in place to sustain the proprietary status of designated IC.  The intent of such an exercise is to reduce the probability that value driving IC would (purposefully, inadvertently, surreptitiously) enter the public domain or become known (acquired) by global competitors.  Should either occur, it would hasten diminishment of the assets’ contributory value, revenue generating capability, as well as any competitive advantages it may have influenced.

It warrant’s saying also that conducting periodic inventories and/or audits of intellectual property is no substitute for, nor does it equate with what’s necessary for managing and safeguarding IC assets, particularly in today’s highly competitive and globally predatorial business (transaction) environment. And, with steadily rising percentages of company value, revenue, growth potential, and sustainability tied directly to the production and effective use of intangible assets, like IC, 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!

Key professionals, like Mary Adams of I-Capital Advisors, are respected thought leaders, strong advocates and practitioners serving this increasingly important business arena.

Readers interested in learning more about intellectual capital management are encouraged to visit the IC Knowledge Center and/or read ‘Intangible Capital: Putting Knowledge to Work in the 21st Century’ by Mary Adams and Michael Oleksak which was the inspiration for this post.

Intangible Assets and SME’s…

April 19th, 2012. Published under Intangible asset strategy, Managing intangible assets, SME's. No Comments.

Michael D. Moberly   April 19, 2012

For management teams and senior leadership of SME’s, there may be few better uses of one’s time, particularly in this increasingly knowledge-based and intangible asset driven global economy than to ensure those intangible assets are being effectively managed, profitably exploited, and firmly embedded in the company’s operating processes and culture.  Management teams unfamiliar with or reluctant to engage their intangibles will find this a prudent and much needed undertaking that can produce enterprise-wide benefits.

SME management teams who have already achieved operational familiarity with intangibles recognize those skill sets can produce numerous benefits, not the least of which is to serve as a starting point to elevate the probability a company will not merely experience mediocre success, but stand out in their market space and among competitors by…

  • being innovative
  • sustaining and enhancing their competitive advantages, and
  • effectively and efficiently exploiting (producing, bundling, positioning) other intangible assets.

Respecting the economic fact that 80+% of most company’s, including SME’s, value, sources of revenue, and ‘building blocks’ for growth and profitability today evolve directly from intangible assets, there is, in my view, ample room-opportunity for managerial discretion and maneuverability to make such an initiative not merely worthy of their time, but lucrative and strategically beneficial to their company as a whole.

It’s still fair to say though, respectfully, and there is virtually no evidence to the contrary, that significant percentages of SME founders, owners, and management teams remain unfamiliar with, unconvinced about, and/or disinterested in…

  • the intangible assets their company has developed, produced
  • the contributory value of those assets to particular projects, business units, or the enterprise as a whole
  • strategies to effectively exploit those assets to add value, depth, and sustainability to their company.

That said, it remains nothing short of an operational (business) imperative today that SME management teams seek any and all opportunities to develop a strong understanding and appreciation for intangible assets that include, among other things, methodologies – strategies to:

  • identify and unravel intangibles’ origins, and assess their contributory value
  • promote effective and efficient utilization of intangibles, i.e., leverage them internally, externally, and among stakeholders to influence additional and continued innovation, and
  • exploit them to enhance – secure competitive advantages, reputation, image, and goodwill, and relationship capital, etc.

Unfortunately however, there remain numerous real and perceptual hurdles that, in essence, discourage, even deter some management teams from engaging their intangible assets and related opportunities to exploit those which are internally produced.  This is largely because intangibles are still not consistently recognized or accounted for on a company’s balance sheet or financial statement other than being folded into goodwill which, in my view, falls short of providing SME management teams with a sufficiently strong rationale to aggressively and profitability engage them!

Too, key parties and institutions that presumably would have direct interest in using an SME’s financial reports (if they fully addressed intangibles), i.e., (a.) lenders for assessing asset-backed lending decisions, or (b.) SME management teams relative to fiduciary incentives to (better) manage, use, and exploit their intangibles, are discouraged from doing so, in part due to the (perceived) absence of objective and replicable methodologies to measure the performance and (contributory) value of intangible assets.

Still, the professional – personal incentive a business leader might enjoy from engaging – embarking on an intangible asset focused course of action is a worthy and useful starting point for making many (tactical as well as strategic) business decisions, and certainly for commencing any business transaction, because inevitably, intangible assets will in play in both circumstances.

SME management teams should therefore not overlook, especially in this globally charged knowledge-based economy, the reality that intangibles represent the dominant drivers –  foundations to (company) value, revenue generation, growth, and profitability.

Unfortunately, as noted above, there remain, what some would describe as, real disincentives, which many SME management teams default, as a rationale for not engaging the intangible assets which they have fiduciary responsibilities for managing, overseeing, and stewarding.

Each blog post is researched and written by me with the genuine intent it serves as a useful and respectful medium to elevate awareness and appreciation for intangible assets throughout the global business community.   Most of my posts focus on issues related to identifying, unraveling, and sustaining control, use, ownership, and monitoring asset value, materiality, and risk.  As such, my blog posts are not intended to be quick bites of  unsubstantiated commentary or information piggy-backed to other sources.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of my posts, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance or business transaction.  I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

 

Intellectual Capital: Safeguards and Management Are Not Options!

April 18th, 2012. Published under Intangible asset protection, Intellectual capital management.. No Comments.

Michael D. Moberly    April 18, 2012

First, let’s agree that managing and safeguarding a company’s intellectual (relationship and structural) capital (IC) is a business necessity and fiduciary responsibility. It’s simply not an option nor a luxury for companies that wish to remain economically and competitively ahead.   Why, because a company’s IC serves as one of several key (intangible asset) underliers and enablers of company growth, profitability, and sustainability.

IC is often characterized (defined) as a company’s collective knowledge, know how, and skills that accumulate and/or accrue over years of operation.  But, that’s not all, IC is also the understanding of how and when to best apply and/or adapt that knowledge to fit particular circumstances or challenges.

Managing and safeguarding intellectual capital starts by recognizing the economic fact that 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangible assets, of which IC is just one.

A ’best practice’ IC management and protection regime should:

  • be relevant and flexible to accommodate diverse and complex companies and circumstances as well as each of the formats which IC manifests itself (exists)
  • not impede or appear debilitating to existing business processes, operations, and functions
  • recognize that IC is perishable, easily transferrable, and consistently vulnerable to theft, misappropriation, and/or compromise
  • be tailored to address (mitigate) the often nuanced and increasingly sophisticated vulnerabilities and risks relative where and how a company conducts its business-transactions, its industry sector, and its product/service lines.

Managing and safeguarding a company’s IC, in its most simplistic form, also consists of two key responsibilities:

  • conducting – maintaining an inventory of a company’s IC.
  • possessing the knowledge and skill sets to objectively assess and distinguish how much andwhat aspects of a company’s IC are:
    • in useand, determine if they can be used more effectively and profitably to add value to the company.
    • not in useand, determine if they remain relevant, material, and/or useful to the company or, perhaps to other entities, vs. remaining as stagnant assets and costs.

Interestingly, Davis and Harrison (authors of ‘Edison in the Boardroom’) estimate that only 30% of many company’s entire IC portfolio may actually be in use, with the remaining 70% likely found in various (other) forms, e.g., intellectual property that has become obsolete, and/or embedded in various products or services that are no longer in the company’s inventory.

While these estimates may well be accurate, I tend to discourage companies from using those estimates if they inadvertently influence and/or pre-judge the outcome of an IC inventory – audit.  My reasoning is that most companies possess – have embedded a virtual variety of IC, much of which is distinctive to an enterprise or project which ultimately needs to be recognized and assessed.  But, the Davis and Harrison percentage estimates do catch one’s attention and perhaps that’s what they were supposed to do?

Let’s suggest for a moment that a company’s board and senior leadership conclude that it would be useful to resource an IC management audit – inventory.  Should that occur, the (audit, inventory) team should be charged with the mandate to identify, assesss, manage, and exploit the company’s IC in the same-similar manner they would with other business (intangible) assets.

Unfortunately, there remain far too many company management/leadership teams and boards who cling to the perception that intellectual property enforcements, i.e., issuance of a patent, is synonymous with – equates to IC safeguards and management, when in fact it is only through the managed exploitation of IC (and IP) that value, sources of revenue, and building blocks for growth and sustainability can be generated.

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

 

Intangible Assets: Can Become Entangled In Costly And Time Consuming Disputes And Challenges

April 17th, 2012. Published under Enterprise risk management., Managing intangible assets. No Comments.

Michael D. Moberly    April 17, 2012

Business risk vulnerability-probability equations have changed from merely being subjective prognostications to inevitabilities particularly when we’re talking about companies intangible assets that have gone unrecognized, unchecked, or ineffectively managed.

Based on my own experiences, there are, at minimum, six ways in which a company’s most valuable assets, i.e., intangibles, become, with increasing frequency, entangled and/or ensnared in costly, time consuming, and sometimes irreversible legal disputes and challenges.  Particular intangible assets I’m referring to include proprietary know how, intellectual, relationship, and structural capital, some categories of intellectual property and other intangibles that underlie and contribute to building – sustaining company and asset value and competitive advantages.

Typically, when know how-based intangibles become involved in disputes and/or challenges it’s a consequence and/or combination of…

  1. Misplaced and/or a violated trust among business partners, research collaborators, and/or management team members.
  2. Asset safeguard miscues that unnecessarily create – elevate the vulnerability of intangibles to compromise, misappropriation, or, theft.
  3. The absence, ineffectiveness, and/or inconsistency in the management and oversight of a company’s intangibles insofar as they constitute the dominant drivers’ of company value, revenue, and competitive advantage.
  4. Unethical or illegal conduct of personnel, contractors, and/or vendors most anywhere in the supply – value chain that triggers – facilitates asset compromises and undermining competitive advantages…
  5. Assumptions held by management teams and counsel that conventional IP, i.e., patents, trademarks, and copyrights, etc., are sufficient standalone deterrents to infringement, misappropriation, and product – service counterfeiting …
  6. Disregard and/or being dismissive about the speed which asset value and competitive advantages can be compromised and irreversibly undermined…

In today’s globally competitive and predatorial business environment intangible assets are routinely in play and therefore integral to most every deal.  Dismissing any of the above  challenges as merely constituting additional risks of doing business in the knowledge era will also, with increasing surety, lay a foundation for outright deal failure and/or asset under-performance.

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

 

Intangible Asset Intensive Companies: Attracting Investors

April 16th, 2012. Published under Due Diligence and Risk Assessments, Intangible asset protection, Intangible asset strategy. No Comments.

Michael D. Moberly    April 16, 2012

Many, if not most companies want to attract investors.  For intangible asset intensive companies there are particular strategies that company management teams should consider to elevate investor curiosity and render them more attractive investments. 

I encourage management teams, c-suites, and boards to read intangible asset and IP-related surveys and studies, particularly one’s previously produced by Howery which, among other things, found prospective  investors are more likely to have more than a passing interest in companies that have practices in place to identify, assess, monitor,  safeguard, and (e.) fully utilize their intangible assets as effectively as possible.

Two key reasons why experienced (prospective) investors are focusing more attention on intangible assets are:

  • their correlation to a company’s attitude for recognizing and consistently monitoring the value of intangible assets, IP, competitive advantages, and sustainability.
  • they obviously understand that intangible assets comprise 65+% of most investment’s value, projected sources of revenue, and ‘building blocks’ for growth and overall sustainability. 

Therefore, investing in companies that have either no, ineffective, or inconsistently applied procedures – practices to identify, assess, and sustain control, use, ownership, and monitor the value and materiality of about-to-be-invested intangible assets presents, at minimum, a cautionary yellow flag insofar as an invest – don’t invest decision is concerned. 

Too, when asset management and oversight (of intangibles and IP) are deemed lax, non-existant, or when management teams exhibit indifference or trivialize the prudence, or worse, don’t recognize the necessity to safeguard their (intangible) assets, it would be quite proper to presume risks and vulnerabilities (to those assets) will elevate and probably materialize.  When, not necessarily, if those risks materialize, asset contributory value will almost assuredly erode.  For prospective investors and stakeholders then, circumstances like this can, quite literally push an investment initiative and/or strategic alliance beyond acceptable (risk) thresholds.

It warrants being said again, that in today’s globally competitive, increasingly predatorial, and ‘legacy free’ business (transaction) environment, the mere fact that a company has been issued a patent, is standing alone, not likely to negate the aforementioned risks or produce much additional investor confidence as it did in previous decades.  

Unfortunately however, many management teams, naively in my view, remain inclined to assume conventional IP enforcements, i.e., patents, trademarks, and copyrights are applicable to other forms of intangible assets and therefore suffice as an intangible asset protection strategy.

More aggressive and targeted due diligence can mitigate, if not alleviate, a good portion of risk.  Due diligence questions should, among other things, determine whether the IP and the underlying intangible assets been adequately safeguarded:

  •  from inception, and
  • in pre and post transaction-investment contexts?

If so, this generally translates as greater assurance that asset value and utilization remain intact.  Its worthy to remember though, in this globally competitive and predatorial business environment, neither can be assured solely because a patent has been issued.

On a positive note, increasing numbers of prospective investors – stakeholders are experienced enough to recognize that conventional IP protections do not supplant a comprehensive set of policies, practices, and procedures to safeguard and monitor valuable (intangible) assets.  But, when management teams proceed indifferent to the risks,  prospective investors should exercise their options to:

  • abandon the investment altogether, or 
  • ratchet-up the due diligence and asset assessment process to identify and leverage the (pre – post) risks for better terms. 

The result often is, in the absence of managerial oversight on these increasingly critical aspects noted above,  investments are increasingly likely to manifest themselves as frustrating experiences that fail to meet the projected (desired) outcomes.

IP (Intangible) Asset Theft-Loss: Sobering Business Realities!

April 11th, 2012. Published under Economic Espionage, Intangible asset protection, Intellectual Property Rights, Trade secrecy.. 2 Comments.

Michael D. Moberly    April 11, 2012

Let’s be clear, I am not advocating a protectionist view here.  I am however, a strong proponent of Article I, Section 8 of the U.S. Constitution that states (paraphrased), ‘if one invents a new product and/or technology, etc., and has been issued a patent, trademark, or copyright by the U.S. Patent and Trademark Office (USPTO) they, and only they, should reap the economic benefits from their efforts’.

Once IP has been issued, the holder essentially has the sole responsibility for sustaining the much coveted exclusivity and executing the necessary protections, which frankly, are dependent on numerous factors, but primarily whether the IP holder:

  • consistently engages in best practices to effectively safeguard their IP, and
  • has the resources to consistently monitor  and aggressively (legally) pursue any attempts to misappropriate, infringe, or steal their IP.

A very relevant business reality for IP holders to consider is that not all cultures, countries, or individuals embrace or interpret the largely western dominated view regarding IP exclusivity.

For example, in McAfee’s (2009) report titled ‘Unsecured Economies: Protecting Vital Information’, the subject matter experts who responded to the survey agreed (not surprisingly) that if an enterprise (country, company, organization, etc.) can (illegally) appropriate R&D for example, at minimal cost compared to legitimate competitors and then go on to produce a comparable product (albeit it a product developed from infringed IP) at a far lower cost, basic economics dictate that the manufacturer of the (infringed) product will, in fact, win space in the marketplace.

Thus, the global incentives for state sponsored, companies, or individuals to engage in industrial – economic espionage, i.e., appropriate others’ intellectual property, remains high, particularly in markets (countries) where:

  • there are few, if any, well established brands and corresponding consumer (brand) loyalty, and
  • there is an abundance of ‘legacy free players’ (Thomas Friedman) in which private property ownership remains a relatively new concept as does the ownership of intellectual property..
  • the business transaction environment is ultra-aggressive, competitive, predatorial, and winner-take-all.

While the realities conveyed above are well understood within the information asset protection community, there remain a significant number of companies that express an attitude of dismissiveness, not only about IP risk, but developing effective policies, procedures, and practices to mitigate this global and costly reality.

Too, many companies still do not have an integrated (enterprise-wide) approach to address the persistent challenges associated with IP theft, infringement, and/or misappropriation, which minimally requires…

converging the expertise of information asset protection, HR, IP counsel, IT security, risk management, marketing, and R&D as a starting point to address c-suite fiduciary responsibilities for ensuring control, use, ownership, and value of a company’s intangible (IP) assets are sustained for the duration of their respective value and functionality cycle.

 Of course, to achieve this on any semblance of consistency, it’s absolutely essential today that:

  • there is an on-going dialogue among a company’s various professional disciplines regarding risk to IP assets
  • each disciplines’ perception of (IP) risk will be recognize
  • consensus is reached on what actions (policies, procedures, practices, etc.) are necessary to prevent, deter, and/or mitigate the risk.

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Intangible Asset Due Diligence

April 10th, 2012. Published under Due Diligence and Risk Assessments, Intangible asset assessments/audits., Investing in intangible assets.. No Comments.

Michael D. Moberly   April 10, 2012

It’s time prospective investor’s and VC’s get serious!  In my judgment, an important, but all too often overlooked aspect to achieving favorable terms and outcomes to venture capital-backed projects, is balancing (a,) the understandable requisite for putting an experienced management team in place, with (b.) ensuring control, use, ownership, value and materiality of the about-to-be invested intangible assets are sustainable.

A starting point for achieving such a balance is conducting a comprehensive due diligence and assessment of the targeted intangible assets designed to provide prospective investors (VC’s) with an objective and over-the-horizon analysis of the assets’ status.  A equally worthy product of the due diligence and assessment is that it can serve as the foundation for:

  • making the all-important invest – don’t invest decision, or
  • consummating a more secure, profitable, and sustainable outcome for investors.

This level of due diligence and asset assessment must extend well beyond the conventional ’snap-shot-in-time’ or amateurish ‘check the box’ approach.  It must include…

  1. unraveling the assets to identify any/all under-the-radar risks and vulnerabilities that could…
  2. impair and/or entangle particular (intangible) assets and adversely affect investor’s ability to sustain their control, use, ownership, and value
  3. serve as preludes to costly, time consuming, and investment stifling legal disputes and challenges.
  4. identifying all centers of internal and/or stakeholder intangible asset generation, value, and revenue production beyond what is already publicly available.
  5. identifying – assessing existing (intangible) asset production, protection, and value preservation measures and determine if they are effectively aligned with the:

                     a. investors’ objectives

b. company’s strategic business plan, and

                     c.  functional (life, value) cycle of the about-to-be invested assets.

Preferably, depending on the due diligence – asset assessment team’s operational familiarity with intangibles, they would determine if the identified risks can be prevented or mitigated to a (risk) tolerance level acceptable to the investing party so the transaction can proceed.

For start-ups and early stage firms, it is not uncommon for 75% to 90+% of their value, sustainability, projected sources of revenue, and building blocks for growth to directly evolve from intangible (IP-based) assets. This makes intangible asset due diligence and assessments all-the-more essential and potentially revelatory insofar as serving as a foundation, again for invest – don’t invest decisions, relative to distinguishing assets that are suspect, impaired, or have already been compromised.

In these circumstances, while it may not be necessary to wholly abandon a particular investment opportunity, it can prompt prospective investors to include specific (risk mitigation – transfer) covenants that are applicable on both the pre and post transaction side.

It’s unlikely, in my judgment, when an intangible asset due diligence – assessment revels significant risks, merely putting an experienced management team in place would, standing alone, be able to overcome or reverse such transgressions absent costly, time consuming, and momentum stifling legal challenges!  Therefore, having experienced and sophisticated intangible asset specialists conduct the due diligence will reap strategic returns for prospective investors.