Archive for November, 2012

All Politics Are Local, But Most Business Transactions Are International…

November 30th, 2012. Published under Fiduciary Responsibility, Sustainability of intangible assets.. No Comments.

Michael D. Moberly   November 30, 2012

The former Speaker of the U.S. House of Representatives’ Thoms P. (Tip) O’Neill, is noteworthy for many things, one of which was his often espoused perspective that ‘all politics is local’.  We understand that ‘homey’ perspective because it’s very much ‘in your face’ during each national election cycle.  But, I’m confident Speaker O’Neill would agree that while most U.S. politics remains local, it routinely has coinciding national, regional, and international implications as well.

In many respects, the same holds true for many business transactions today, particularly when intangible assets are in play, because their origins are often global, not just local.  Drawing further emphasis to this lies the economic fact that 65+% of most company’s value, sources of revenue and ‘building blocks’ for (company) growth, profitability, and sustainability evolve directly from an array of intangible assets.

So, very much akin to political contests, most business transactions are conducted in increasingly competitive and predatorial contexts, with winner-take-all outcomes, but, never-the-less, bear local, regional, national, and certainly international implications.

One significant difference between business transactions and political contests, is that business transactions carry fiduciary responsibilities relative to the stewardship, oversight, and management of intangibles in pre and post transaction contexts because among other things, there is a contractual and legal relationship formed between the parties.  Whereas, the rhetoric politicians espouse during campaigns is broadly understood as being just that, unaccountable and non-binding rhetoric, until the next election cycle.

Credibility, confidence, and efficiencies and be added to the work of transaction management teams when intangible assets are in play as it increases the probability that pertinent details, particularly those related to sustaining control, use, ownership and monitoring the value and materiality of the assets (pre and post transaction) are considered.  In other words, intangibles must and should be fully addressed in any transaction and the transaction management teams’ on-going reports to their c-suite and board regarding transaction progress.

Too, it’s important to bring clarity to business transactions by distinguishing intellectual properties and intangible assets.  Conventional forms of IP are actually a subset of intangible assets.  IP enforcement mechanisms are well known, i.e., patents, trademarks, copyrights, etc., but are not necessarily synonymous with…

  • sustaining control, use, ownership, or monitoring value, materiality, and sustainability of intangible assets, or
  • the ability to extract value (commercialization) benefits from a transaction.

Because intangible assets are almost inevitably in play in business transactions, transaction management teams are now well advised to:

  • Be consistently mindful of the economic fact – business reality that 65+% of a transactions’ value and ultimately the sustainable economic benefits lie in intangible assets…
  • Treat the control, use, ownership, and value of the intangible assets that are in play as business decisions and fiduciary responsibilities integral to relevant legal processes…
  • Recognize intangible assets are vulnerable – at risk especially pre-post transaction stages, so techniques to mitigate risks – threats and sustain control, use, ownership, and monitor the assets value and materiality is essential…
  • Recognize that if certain risks – threats materialize (pre – post transaction) they can:
    • undermine competitive advantages and erode projected profitability
    • cause time consuming and costly distractions that disrupt transaction momentum
    • ensnare-entangle the assets in costly legal challenges and/or disputes.

Thus, business transaction management teams are encouraged to integrate the above guidance, particularly when transactions involved intangible assets, which they inevitably do today; it will enable-facilitate stronger, more secure, profitable, and efficient transactions, not impede them!

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

Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!

Obama’s Insider Threat Guidance: It’s Good For The Private Sector Too…

November 29th, 2012. Published under Insider Threats. No Comments.

Michael D. Moberly   November 29, 2012

The Obama administration issued a guidance memorandum earlier this week to address the persistent, wide-ranging, and presumably growing threat of (classified) information loss posed by insiders and adversaries which the U.S. GAO characterizes as a ‘meteoric rise’.

This guidance memorandum was the culmination of an October, 2011 Executive Order (13587) which, among other things, created a high level task force to develop strategies, or perhaps better stated, minimum standards which government agencies are to implement and follow, to prevent more PFC Bradley Manning – WikiLeak situations from occurring. The actual ‘standards’ have not been publicly released yet, but many in the affected government agencies anticipate they will be issued in the coming week.

I am very comfortable in stating it would be in the interests of the U.S. private sector, i.e., c-suites, boards, management teams, CIO’s, CFO’s, CIPO’s, CSO’s, and CRO’s, etc., to ‘put their proactive hats on’ and actually read – study the President’s guidance memorandum  and the standards as they become available.   Reading-studying the memorandum through a proactive vs. reactive lens can influence parties to recognize the array of risks-threats described in the administrations’ memorandum and their equivalency to private sector firms, not just the government (agency) side.

It’s worth noting too, that, defense-national security adversaries are not necessarily an exclusive or separate domain or skill set, apart from adversaries and/or insiders engaged in economic and industrial espionage.   An equally significant reality is that, whether the perpetrators be insiders or external, presumably foreign (state-sponsored) adversaries and/or agents, information asset losses, i.e., intellectual, structural capital and proprietary operational knowhow, the result is no longer merely a temporary public embarrassment.  Rather, information asset losses and compromises more frequently reflect long term and permanent (irreversible) losses to a company’s value, revenue, reputation, market space, and competitive advantage it may enjoy.

My work is exclusively focused on the private sector.  My business mantra is to ‘help companies identify, assess and sustain control, use, ownership, and monitor value and materiality of their contributory value, revenue, and competitive advantage producing intangible assets’.  I firmly believe, and experience clearly supports, companies that either do not have or have ineffective, poorly designed and inadequately overseen practices in place for each component of ‘my mantra’ will inevitably, not probably, find their key intangibles vulnerable and unsustainable.  Translated in 2012 and 2013 contexts, this means company’s most valuable (intangible) assets and the contributory value they produce, will, not may, be misappropriated, infringed, counterfeited, or merely meld away as an irretrievable precipitator to a company’s premature demise.

Willie Sutton, the infamous bank robber, was asked, according to urban legend, ‘why do you rob banks’?  In straightforward fashion his response was reportedly, ‘it’s because, that’s where the money is’!

In a perverse sort of way, and, of course, setting aside classified national security assets, Sutton’s view and mine are similar in this context; U.S.-based intangible (intellectual property) assets are frequently, if not wholly targeted by economic and competitive advantage adversaries and insiders because, the U.S. is where large percentages of such assets, i.e., intellectual and structural capital originate and is developed, i.e., commercialized.

In today’s increasingly interconnected global business transaction environment, there is a high level of universality in the economic fact that 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, sustainability, profitability, market space, and competitive advantages lie in – evolve directly from a range of intangible assets.

Readers are encouraged to recognize, it’s not solely national security/defense information assets insiders and other adversaries seek, rather it’s the intellectual and structural capital, and   operational knowhow necessary to achieve quick and least costly economic and competitive advantages.  And yes, intellectual property is also sought, but only in the context if the IP leads to quick and profitable outcomes in a particular market space. My own experiences suggest that those companies who disagree with this perspective will find themselves constantly engaged in the proverbial uphill skirmishes in which they may periodically perceive they win a war or maybe two.  On the other hand, the persistent, asymmetric, and increasingly technologically advanced threats – risks posed by insiders and other adversaries, are highly individual battles, not wars, which unfortunately thus far, they’re all too likely to win.

Anecdotal accountings and a multitude of studies identify gradations, motives, tenacity, and intensity of the threats-risks posed by ‘insiders’.  But, what’s new and clear relative to the Manning – Assange (apparently collaborative) incident, is that there’s no precedent for the shear mass of data and information assets that were taken and disseminated, aside from perhaps, the ‘Pentagon Papers’, a 1960’s event which few, if any ‘mannings’ even know, about let alone try to emulate.   And, to add insult to injury, stealth in this instance, was apparently merely a single PFC’s rouse of downloading ‘Lady Ga Ga’ music but, from a remote government computer with access to classified information.

So, however one perceives the ‘pfc manning’s’ of the world, he represents a new, but surely inevitable breed of insider/adversary (threat, risk),  one that is more calculating and in some respects more stealthy, and whose acts can potentially cause more irreversible, costly, and immediate/instantaneous damage-harm and embarrassment to a company than their predecessors who were largely confined or limited to stealing only ‘hard copies’ that they could put in the proverbial shoe box and carried out the front door.  It’s not unlike the former Detroit auto executive who literally put paper copies of ‘plans, intentions, and capabilities’ of his former employer to take to his new European automaker employer as an arrogant and very strategic ’housewarming gift’.

The PFC Manning event certainly prompted the executive orders, memorandums, and soon to come, minimum standards.  But, this event should also have represented the proverbial ‘wakeup call’ to the millions of small, mid-size, and Fortune 1000 firms that have developed unique and valuable sets of intangible assets that literally deliver (underlie) their company’s value, sources of revenue, competitive advantages, market position, and growth potential.

When a company experiences a theft, misappropriation, or compromise of information-based (intangible) assets, be it by a trusted insider or a global adversary, while the consequences are seldom equivalent to a significant national security breach, their impact to the victim firm, in terms of lost revenue, undermined competitive advantages, lost market position, damaged reputation, etc., can be, and often is, financially devastating and irreversible!

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

Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!

Restrictive Covenants…Can Be Powerful Tools For Safeguarding Intangible Assets!

November 26th, 2012. Published under Intangible asset protection, Managing intangible assets. 1 Comment.

Michael D. Moberly   November 26, 2012

The objectives of this post are to…

  • Recognize restrictive covenants as constituting a type of intangible asset that when effectively designed and implemented contribute to safeguarding company’s key proprietary – trade secret information, i.e., intellectual, structural, and relationship capital
  • Encourage senior security, HR, c-suite, and legal executives to collaborate insofar as formulating specific, transparent, and defensible restrictive covenants.

Intangible assets are now the globally universal and dominant sources of most company’s value, revenue, profitability, and sustainability.  Conservatively, 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets.

So, whether one is a senior security executive and part of a company’s c-suite and/or management team, a key objective is to build and maintain a profitable and sustainable firm.  An integral strategy for achieving this, is coordinating best practices with restrictive covenants that collectively aid in – contribute to sustaining control, use, ownership, and monitoring (intangible) assets’ value, materiality, and sustainability throughout the assets’ respective life, value, and/or functionality cycle.

There Are No ‘One Size Does Not Fit All’ Restrictive Covenants…

Every company has an obligation, if not fiduciary responsibility, to develop, nurture, distinguish, and safeguard its most valuable, revenue, and competitive advantage producing assets, i.e., intangibles.  Unfortunately, for a significant number of companies, a strategy to achieve these obligations, which we now recognize as being integral to most every company’s profitability and sustainability is relegated to shoehorning employees, irrespective of position, into signing, what I would describe as generic, one-size-fits-all restrictive covenants which are frequently absent language and/or position specificity and transparency to employees.

This oversight renders broad, all-inclusive, one-size-fits-all restrictive covenants frequently vulnerable to being challenged and contested during litigation for the reasons noted above, particularly in litigation in which misappropriation, infringement, and/or theft of intangible (IP) assets is being alleged. Typically, the challenges to such restrictive covenants strikes at their non-specificity which, it is argued, leaves employees with a defensible sense of ambiguity and variance as to what actually constitutes a company’s proprietary information and/or knowhow.  Consequently, generically themed/conceived restrictive covenants pose a higher probability of being disallowed (dismissed) by a court.

Restrictive Covenants Should Convey Specificity…

A much wiser tactic today is for restrictive covenants to be as specific as possible by including, among other things, language and updates to reflect an employee’s evolution within a company in terms of position change responsibilities, and access to and/or handling of particular types of proprietary (trade secret) intangible (information–based) assets.

One indicator that the scope of a restrictive covenant is too broad lies in assessing how closely it reflects the company’s actual business interests. That is, each business is unique and employees develop their own operational nuances (intangible asset, i.e., structural, intellectual, and relationship capital) that (a.) when acknowledged, and (b.) appropriately managed contributes value to a company and/or business unit in the form of efficiencies, effectiveness, output, etc.

Given these realities, using standard (off-the-shelf) restrictive covenants for employees to safeguard a company’s most valuable (intangible) assets and trade secrets is surely unwise.  So, a company’s often unique and nuanced operational knowhow demands, at minimum, carefully tailored restrictive covenants relative to a company’s specific operational and sustainability, profitability, and sustainability, and business environment.

It’s worth repeating, if restrictive covenants are overly broad and not obviously reflective of (a.) the nature of a company’s actual business, (b.) its mission, or (c.)  an employee’s position within the company, such oversights will collectively elevate the probability that the restrictive covenants will be contested on their merits.

Ultimately, if/when restrictive covenants are contested as part of litigation strategy, plaintiff’s counsel must effectively demonstrate the covenants were designed, administered, and updated with (a.) sense of fairness, (b.) reasonableness, (c.) transparency, and (d.) relevant to an employee’s position.

It’s also prudent for introductory language to restrictive covenants draw attention to – explain how unfair competition will surely result should departing employees be allowed to share proprietary operational know how, i.e., intellectual, structural, and relationship capital gleaned from their former employer with a new employer.

With respect to departing – terminated employees, it’s both prudent and meaningful to ensure their exit interview includes re-familiarizing them with…

  • previously signed (perhaps successive/progressive) restrictive covenants, and
  • specific trade secret, proprietary information and operational knowhow they had access to and presumably know.

Effectively tailoring employee restrictive covenants requires, in my view, (a.) genuine collaboration among senior security, HR, and legal counsel, etc., and (b.) evidence which demonstrates…

  • unique and valuable information that has been developed and is being applied in the company, has been identified and distinguished, e.g., customer lists, R&D, marketing plans, any other information-based (intangible) assets that deliver value, produce revenue, and/or contribute to achieving competitive advantages…
  • whether or not particular any of the above information qualifies – meets the requisites of trade secrecy?, and, if so, are correct safeguards in place…
  • that employees receive adequate training (orientation, understanding) about how to safeguard information-based (intangible) assets the company considers valuable to its mission, profitability, and sustainability…
  • whether (employee) restrictive covenants are being periodically reviewed and updated to reflect an employees (a.) promotion, (b.) assumption of new responsibilities, and/or (c.) access to and use of additional confidential – proprietary information…
  • transparency with respect to restrictive covenant development and implementation that brings maximum clarity to signatories, (be they applicants, new hires, or long time employees), regarding (a.) content, context, and purpose, (b.) covenant enforcement, and (c.) consequences for violation.
  • companies have/are not treating restrictive (employment) covenants as insignificant addendums to conventional employee ‘on-boarding’ processes, nor are they imposed unexpectedly and compelling employee signatures as a condition of employment, absent explanation or allotting sufficient time (for employees) to review, reflect on, and/or intellectually absorb covenant language and consider – inquire what affects it may have relative to (a.) their current position, (b.) their future employment prospects, and/or (c.) departure from the company.

Correctly conceived and implemented restrictive covenants are extraordinarily (increasingly) important intangible assets to companies in as much as they…

  • describe which information assets are determined to be proprietary, confidential, and/or constitute a trade secret, and
  • represent important (strategic) indicators about where a company believes its value and sources of revenue originate and its sustainability resides.

When executed professionally and articulated respectfully, restrictive covenants can…

  • contribute to solidifying – embedding a long term company culture receptive to safeguarding valuable intangible assets, and
  • convey intolerance to those who may, at some point, become inclined to disregard the covenants.

In summary, it’s prudent that restrictive covenants should…

  • be drafted as narrowly and specifically as possible, without incurring over-reach.
  • be tailored reflect the employer’s particular business and not in a ‘one size does not fits all’ (generic) context.
  • be disclosed during employment interviews as a condition of employment and in a manner that elevates applicants understanding of their purpose and consequences for violation.
  • inspire a culture of confidentiality.
  • be implemented as quickly as is feasible and enforced consistently.

Avoid Developing Restrictive Covenants That Are Over-Reaching…

I’m confident we are familiar with some companies whose explanation-rationale for utilizing restrictive covenants includes one-off events, anecdotes, and/or ‘war stories’ which, in my view, leaves many new hires as well as existing employees with the impression that either…

  • everything about the company is, in some manner, proprietary or confidential, or perhaps worse,
  • the company management team and c-suite are unfamiliar with its revenue – competitive advantage producing intangible (information-based) assets and uncertain about how or which ones to safeguard.

The reality is, while many business’s may rely on important, valuable, and presumably secret or proprietary information and knowhow, when challenged, they may find much of it does not meet the legal definition of trade secret or confidential information.  Consequently, while much operational information is very important to a company, it may well not warrant the time and resources to safeguard it as either a trade secret or even confidential.

My message is; put efforts toward safeguarding information a company can and must be kept out of the public domain and certainly out of the hands of competitors!

It’s worth noting, when challenged, if a company is unable to clearly articulate sound (business) reasons why certain information assets warrant protection, it’s unlikely the company will be able to effectively – successfully identify a reason when ‘secret’ information assets walk out the front door with a former employee or insider. Again, if, when litigation becomes necessary should counsels’ opening remarks not meet the burden (requisites) of proof, professional embarrassment may be the least of one’s worries at that point. So, a second message is, in my view, avoid minimizing the significance and value of the information assets that a company has assessed as genuinely warranting protection.

Implement Restrictive Covenants As Quickly As Possible…

In litigation, adequately safeguarding intangible assets for the long term should not be perceived nor characterized as either boiler plate or a ‘snap-shot-in-time’ initiative.  Rather, it must be demonstrated as ongoing with regular reviews and ‘tune-ups’ when and where necessary. Simply drafting a restrictive covenant plan, absent thoroughly considering its execution, will generally be for naught.  It’s advisable then, to avoid designing any restrictive covenant plan that is unnecessarily comprehensive, and challenging to implement and enforce.

Enforce Restrictive Covenants With Consistency…

It’s important to acknowledge that a restrictive covenant plan/strategy will be quite ineffective absent specific efforts to incorporate – embed it into a company’s culture and practice with consistency.  Otherwise, restrictive covenants may prove quite difficult, regardless of counsel’s grasp of the English language, to successfully persuade a judge that the company is doing everything correct relative to safeguarding its proprietary information, knowhow, and trade secrets.

Therefore regular (consistent) training, teaching, and refreshers about employee’s obligations (to their restrictive covenants) are important, necessary, and convey a strong sense of seriousness to courts when challenges and/or litigation occurs.

Conducting periodic, or, at minimum, annual audits and assessments of a company’s intangible assets that not merely (a,) identifies or accounts for them, but (b.) unravels the assets’ location and origin, (c.) assesses their stability, vulnerability, sustainability, and contributory value, and (d.) determines their respective value and functionality cycles’ is a very positive activity, especially when courts seek – want convincing of same!

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

Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!

Safeguarding Intangible Assets Through Restrictive Covenants

November 23rd, 2012. Published under Intangible Asset Value, Managing intangible assets. No Comments.

Michael D. Moberly   November 23, 2012

The broad intent of this post is multifold, i.e.,

  •  address (examine) personnel restrictive covenants in a way that
  • recognizes their contributory role in safeguarding company’s most valuable intangible assets, and
  • encourages senior security, HR, c-suite, and legal executives to recognize the necessity for collaboration insofar as formulating specific, transparent,  and defensible restrictive covenants.

Intangible assets are now the globally universal and dominant sources of most company’s value,  revenue, profitability, and sustainability.  Conservatively, 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets.

So, whether one is a senior security executive or part of a company’s expanding (c-suite) management team, the objective is to help a company and/or client build and maintain a profitable and on-going concern of which an integral obligation, be it cast as a fiduciary responsibility or in a contractual context, is to contribute to safeguarding those (intangible) assets by sustaining control, use, ownership, and monitoring their value and materiality throughout the assets’ respective life, value, and/or functionality cycle.

Intangible assets include not only conventional forms of intellectual property, i.e., patents, trademarks, and copyrights, but also a company’s trade secrets, along with an array of proprietary innovation and unique operational knowhow in the form of (a.) intellectual, (b.) structural, and (c.) relationship capital.

Speaking from 20+ years of experience, in part, because intangible assets are intangible, i.e., non-physical, their vulnerability to misappropriation, theft, infringement, etc., seldom tidily fits conventional risk management – prevention regimes which, in most instances are designed for tangible-physical assets.   One consequence to this ‘un-tidiness’ is that the full extent of intangible asset losses, compromises, thefts, and misappropriations, etc., are more likely to go un-noticed, unreported, or objectively measured.

This situation will likely persist unless and until companies formally recognize their intangible assets and design – put in place effective processes and procedures to consistently identify, assess, safeguard, and monitor the value, materiality, and vulnerability of key revenue – competitive advantage driving intangible assets.

The Preliminary Injunction Hearing

In my view, processes, procedures and restrictive covenants to safeguard companies intangible assets should be designed and implemented based on an inevitability not merely a probability, that asset risks – threats will materialize and reach the point that legal action is warranted to try to recover control, use, ownership, value, competitive advantages, and market space of misappropriated, infringed, stolen (intangible) assets.

Legal action will almost always involve a (preliminary) injunction hearing in which the plaintiff’s primary objective is to very ably and convincingly demonstrate, to the satisfaction of the court, that all that could be reasonably expected and necessary, in accordance with existing standards and/or best practices was in place and fully implemented, i.e., relevant procedures, policies, and practices to effectively and consistently safeguard a company’s key intangible assets.

From legal counsel (plaintiff’s) perspective, the most important outcomes of a (preliminary) injunction hearing are that…

  • the court recognizes the cause is just, i.e., the allegations counsel make are well founded and convincing, and,
  • there is clear evidence that intangible assets developed, possessed, and used by plaintiff have been compromised, stolen, misappropriated, and,
  • those assets have specific and contributory value to plaintiff’s company, i.e., in the form of competitive advantages, brand, reputation, sources of revenue, etc.

For the plaintiff (victim company) a grant of injunctive relief can impede, stop, or at least minimize additional (asset) value and competitive advantage hemorrhaging and market space erosion relative to the stolen and/or compromised (intangible) assets.  A favorable injunction ruling is important to the plaintiff company because experience clearly suggests that asset hemorrhaging in all its forms has already commenced, in most instances, immediately following the perpetration of the adverse act itself.

This means that quantifying asset value losses, competitive advantage hemorrhaging, and market space erosion that have occurred as a result of the alleged illegal act can be very useful evidence presented in preliminary injunction hearings.  That is, providing of course, the assessments are readily distinguished as being linked to the (specific) alleged adverse act and not to other coincidental or irrelevant market forces or events or operationally poor or non-existent safeguards, both of which defendant’s counsel will surely seek to draw attention.

Plaintiffs of course, seek expedited preliminary injunction hearings, due largely to…

  • its implication that plaintiff company had asset monitoring practices in place that provided timely notification of circumstances (economically, competitively) adverse to the company’s intangible assets, and
  • the high probability, as already conveyed, that asset value hemorrhaging and market space erosion has and will persist, if not surge up and to the time a favorable injunction ruling may be granted.

Make no mistake though, regardless of the preliminary injunction hearing outcome, asset holders should not assume any/all asset hemorrhaging will immediately cease, for we are talking about a truly global business economy comprised of literally thousands of ‘legacy free’ players who not only disrespect but genuinely feel immune to western law.

Restrictive Covenants: Non-Competes, Non-Solicitation, and Confidentiality

Embedded throughout this post is the genuine intent that important foundations are laid that will  encourage senior security executives, management team members, HR, and legal counsel to collaborate in advance to formulate viable, defensible, and transparent restrictive covenants to mitigate, if not prevent ‘insider’ (employee) initiated acts of (intangible) asset theft, misappropriation, or infringement, etc.

Having well-articulated, explained, current, and transparent restrictive covenants in place can increase the probability that a court (in a preliminary injunction hearing) will grant the preferred outcome i.e., injunctive relief against the alleged perpetrator(s).

Restrictive (personnel) covenants essentially constitute strategies for contractually safeguarding a company’s information-based (intangible) assets and generally exist in three forms and are intended to…

  • Non-compete – prohibit/restrict current – former employees from re-engaging in employment related to one’s former position (occupation, profession) in a particular geographic area for a specific, but often limited period of time following either their voluntary departure or termination.
  • Non-solicitation – deter, but preferably prevent, about-to-be dismissed or voluntarily separated employees from soliciting customers or colleagues from their former employer for a specified period of time.
  • Confidentiality – protect an employer’s confidential, proprietary information, operational knowhow, and/or trade secrets from being improperly (or illegally) disclosed or used following an employee’s voluntary departure and/or dismissal.

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

Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!

 

Corporate Reputation Risk: Is It Adversely Affected When CEO’s Publicly Express Political Opinions…?

November 19th, 2012. Published under Reputation risk.. No Comments.

Michael D. Moberly     November 19, 2012

CEO’s expressing a political opinion publicly, particularly one which the electorate is deeply polarized, becomes a self-assessing and reputation spreading act, which consumers, stakeholders, and markets may not expect, thus, a new variant to company reputation risk!

Make no mistake company reputation is a very valuable intangible asset.  When effectively and intelligently managed a company’s reputation, that is, the expectations it fulfills for consumers, stakeholders, and markets, can be a substantial source of contributory value manifested as competitive advantage, profitability, market space, and sustainability.

Interestingly, there have been numerous, prominently reported, pre-post-election statements, made by company CEO’s and senior management which may affect (their) reputation.  I presume these statements reflect deeply rooted personal and/or business frustrations which largely are focused on the now presumably inevitable realities of the Affordable Care Act, or Obamacare, as most refer to it. For the company’s noted below, I wonder if their reputation may prove more resilient than I would have thought?

One example is Papa John’s (pizza) CEO John Schnatter, who stated he plans on passing the costs of health care reform (Obamacare) to his business and onto his workers. Schnatter also reportedly said he will likely reduce his employee’s hours as a result of President Obama’s reelection and the implementation of Obamacare.  That statement was soon followed by another in which he told shareholders that the cost of a Papa John’s pizza will increase between 11 to 14 cents, again, due to the implementation of Obamacare.

Schnatter subsequently admitted, “I got in a bunch of trouble saying this, but, that’s what you do, is you pass on costs, unfortunately, I don’t think people know what they’re going to pay for this.”  So, perhaps, in an attempt to at least partially walk back a bit from these statements, which through my lens, constitutes a classic ‘reputation risk 101’ no-no, Schnatter stated he is ‘neither in support of, nor against the Affordable Care Act’.  He even admitted that “the good news is 100 percent of the population is going to have health insurance.”

But Schnatter is not the only senior executive (CEO) in the food service sector to state that workers hours may be reduced due to a mandate in Obamacare which states that employees who work more than 30 hours per week will be covered under their employer’s health insurance plan.

Other CEO’s also went on ‘front-street’, expressing similar (personal) pre/post-election frustrations.  Each must surely have known their statements would prompt some push-back from consumers, markets, and stakeholders, because, if for no other reason, a substantial percentage of the former are Obama supporters.  I just don’t believe it will be a matter of ‘rocket science’ to infer the CEO’s remarks will variously and adversely affect their company’s reputation.

Other food service sector senior executives spoke publicly and in an equally forthright manner about the added costs they believed Obamacare would bring, particularly Zane Tankel, an Applebee’s franchisor who stated the restaurants he oversees would not hire new workers because of the law.

Scott Farmer, CEO of Cintas, a Cincinnati-based uniform company sent an email to his 30,000 ‘partners’ or workers prior to the election asking them to make their voice heard in the upcoming Election, i.e., the

  • Affordable Care Act and other policies of President Obama may cost them their health insurance and ultimately their jobs…
  • uncertainty felt by many customers about their ability to run and grow their businesses, prevents them from adding jobs which hurts our (Cintas’) ability to grow and add jobs…

Cintas’ spokesperson, Heather Maley stated (Mr. Farmer’s) communication was not an attempt to suggest how employees should vote.  Rather it was sent to help them make an informed decision, because he is frequently asked by Cintas’ partners all over the country what is important to Cintas and how do federal regulations and policies impact our company?

Another example was ASG Software Solutions’ CEO Arthur Allen, who sent an email to workers insinuating their jobs may be at stake with another Obama term.  Too, Westgate Resorts CEO David Siegel sent an email to his workers describing how Obama’s policies may “threaten” their jobs.  And, not surprisingly, Koch Industries sent pro-Romney literature to 45,000 of its employees.  Also, according to a report in The New Republic, Murray Energy’s head, Robert Murray, encouraged his employees to contribute to Romney’s campaign,

The reality is, there is nothing particularly new here.  Most American labor unions have consistently and publicly been aligned with political parties, especially, Democratic party platforms’, for years.  Today, however, in my view at least, consumers, stakeholders, and markets are more attentive and sensitive to a company’s reputation.  Reputation is simply more fragile than it used to be for companies, let alone, brand loyalty!

I’m just not convinced public expressions such as this are necessarily something which a company’s board would be suppportive since it carries many of the known requisites for producing at least some consumer back lash, if not a very genuine reputation risk.  In these instances, political neutrality, at least publicly, may be the better, and more ‘expected’ option.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, 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. And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

Business’s Tolerance For Risk To Their Intangible Assets…!

November 12th, 2012. Published under Enterprise risk management., Organizational resilience and business continuity/conti, Uncategorized. 4 Comments.

Michael D. Moberly    November 12, 2012

In my corner of the intangible asset business world, it’s quite routine to engage highly experienced, intelligent, and successful business owners and management teams who cavalierly and somewhat patronizingly, express the view that it’s impossible and far too costly to eliminate (prevent) all business risk, that is if of one wants to remain in business.

Often embedded in this perspective, is the misperception that preventing business risks equates with being overly cautious and risk averse, which some argue is tantamount to a ‘fortress mentality’ which substantially dampens any sense of receptivity to new or ‘edgy’ business endeavors.   Too, a frequent refrain is that business risks are simply too prevalent, inescapable, and asymmetric to avoid in every business dealing, absent literally building a risk prevention – adverse ‘moat’ around one’s business.

My response to such consistent expressions from management teams, c-suites, and boards is to respectfully, but objectively, introduce the notion that a business, with a substantive risk prevention-mitigation pillar is not wholly impossible, nor will it be perceived as antagonistic or incompatible to competitive and welcoming business transactions and configurations.

Some management teams, et al, quite incorrectly interpret, in my view, that the resources  necessary for creating a ‘risk moderated’ business (transaction) environment are neither practical nor feasible and, if done, would inevitably expedite business failure because it would hamper and  impede business’s engaging their strongest, most valuable, and charismatic assets, i.e., intangible assets such as intellectual, relationship, and structural capital.

I’m confident few, if any readers of this blog would agree to such a restrictive business environment.

My experience and I suspect that of many readers of this blog as well, recognize that many management team’s ‘tolerance for risk’…

  • varies considerably, even within the same sector…
  • is generally subjective, often influenced by anecdotal evidence, the products and/or services a company produces, and/or evolve from management team, c-suite, and board perceptions – assumptions about (certain) business risks fro, prior experiences, and…
  • locations of, and interactions with a company’s primary markets, i.e., countries, customers/clients, supply chains, and a host of other relevant stakeholders.

Let’s not overlook or forget the economic fact that 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets today, which in most instances, a business/company has developed internally (i.e., through prudent use of its intellectual, structural, and relationship capital) or acquired and integrated externally.  So, in essence, when we address the subject of a business’ tolerance for risk, in my view, we’re really talking about how tolerant a company is relative to risks to its intangible assets!

According to Dr. Marc Siegel, a globally respected specialist in organizational resilience, there are ways to measure and assess a company’s tolerance for risk which I have added to throughout this post.  But, as readers know, sometimes all too well, measuring and assessing a company’s tolerance for risk is frequently dependent on the experiences, anecdotes, and largely subjective assessments emanating through the lens of management teams, c-suites and boards, i.e., their…

  1. experience and confidence level acquired through their familiarity with and the significance they attach to known, current, and over-the-horizon risks…
  2. ability to following a risk event through effective  risk management, prevention, and/or mitigation initiatives…
  3. organizational resilienceto sustain a robust business (transaction) environment following a significant (business) risk or disruption and consistently utilize-leverage intangible assets to achieve strong growth, profitability, and sustainability trends, i.e., policies, procedures, and practices in place…

a. to mitigate-minimize the criticality posed by certain risks (reputation or otherwise) and,

b. that would allow a business to return to a state of operational and financial and revenue normalcy in a reasonable time frame      because  it  could maneuver and apply mitigation measures to an array of risks to elevate the probability that a previously agreed  upon (accepted) level of business operational continuity is sustainable should a particular risk actually materialize.

4. recognition of core/key intangible assets, e.g., minimizing intangibles’ fragility, and vulnerability to loss and/or compromise, while   stabilizing their value, competitive advantage-reputation delivery, revenue streams, and sustaining their control, use, and ownership throughout the risk event, particularly that which is embedded in intellectual, structural, and relationship capital.

Another important and relevant inquiry I routinely pose to management teams, is how they achieved consensus regarding the acceptance and/or toleration of a certain level of risk and/or operational continuity relative to specific transactions, new ventures, strategic alliances, or other business initiatives in which risks are present and/or occur?  Interestingly, their frequent answer is again, (a.) certain levels and/or types of risk are inherent features of doing business, and/or (b.) all successful business persons are inherently risk takers.

I examine responses such as to why management teams, boards, and c-suites may be inclined to tolerate certain (business) risks and not others?  I find it’s usually because the…

  • risk is frequently subjectively assessed and/or measured to be relatively low in terms of vulnerability and probability, or the
  • perceived cost of risk mitigation exceeds potential (projected) benefits, making elevated tolerance for risk appear to be the more prudent course of action…

However, experience suggests, absent experienced and expert assessments of risks/threats, management teams and c-suites will characterize certain types/categories of business risk…

  • as being low in priority to receive prevention/mitigation resources in terms of probability
  • as being low insofar as occurrence and asset vulnerability to loss, value reduction, and/or compromise, but
  • high in criticality (adverse economic, competitive advantage effects to the company) should certain risks materialize.

But, the reality is today that, many types/categories of business risks are asymmetric, i.e., their magnitude, frequency, criticality, and speed of cascading throughout a business, should they materialize is substantial.

Therefore, for many, if not most companies, projected business opportunities come already affixed with certain levels of risk.  The objective is to mitigate risk exposures to the key-core intangible assets in play to point that management teams can proceed confidently with a particular transaction or initiative while assuming a portion of the risk with confidence and objectivity it will not spillover, cascade, or adversely affect the projected economics or competitive advantages.

This post was inspired by the work of Dr. Marc Siegel and his strong expertise in the field of organizational resilience on behalf of ASIS International.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, 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. And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

Safeguarding and Managing Company’s Intangible Assets…six essential requisites!

November 9th, 2012. Published under Intangible asset training for management teams., Managing intangible assets. No Comments.

Michael D. Moberly   November 9, 2012

To effectively practice the necessary stewardship, oversight and management of a company’s intangible assets can, in my judgment, only begin, when those with the managerial and fiduciary responsibility for doing so…

  • recognize precisely, not just generally, what intangible assets are…
  • how they’re developed and evolve within a company…
  • the economic fact that 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets!

A business reality is however, experience suggests, absent the above levels of understanding and managerial commitment, it’s not just unlikely, it’s virtually certain, that a company’s intangible assets will go unidentified, unleveraged, under-utilized, or under-exploited insofar as facilitating company value, sources of revenue, and competitive advantages.

Other, equally adverse outcomes when intangibles are overlooked, dismissed, or neglected, their vulnerability to a host of asymmetric (global) risks and threats elevates accordingly to adversely affect their contributory value and functioning as sources of revenue and drivers of competitive advantage. Instead, they will be ready targets for compromise, i.e., theft, misappropriation, and infringement, etc.

The objective of course, is for the troika of management teams, c-suites, and boards to meet their fiduciary responsibilities to effectively manage and safeguard the intangible assets their company has developed, possesses, and/or acquired by…

  1. being consistently and collaboratively engaged in – attuned to monitoring (the assets’) status, stability, sustainability, contributory value, and materiality.
  2. recognizing how to position – align intangible assets to create value, sources of revenue, build competitive advantages, and strengthen relationships (build relationship capital) attract external investment, and/or leverage the assets as collateral in asset-backed lending proposals.
  3. having the capability to distinguish and pursue the most prudent and lucrative strategies to exploit intangible assets for commercialization, monetization, or otherwise convert them into sources of revenue, value, and competitive advantage.
  4. being current insofar as identifying, unraveling, and safeguarding a company’s intangible assets and assessing their relevance, contributory, and collaborative value to other company processes and/or transactions, (usually in the forms of intellectual, structural, and/or relationship capital).
  5. consistently bringing business (strategic) clarity to intangible assets insofar as their creation, utilization, positioning, leveraging, and ways to extract value to reflect strategic business planning.
  6. ensuring intangible assets are routine action (discussion) items on management team and board agendas insofar as (a.) identifying ways to increase their contributory/collaborative value (b.)  creating new sources of revenue and competitive advantages, (c.) enhancing brand, image, goodwill, and reputation, and (d.) taking action to mitigate asset risks.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, 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. And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

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Dyson v Bosch: Insider Threats and Risks…

November 5th, 2012. Published under Insider Theft of IP and Intangible Assets, Insider Threats. 1 Comment.

Michael D. Moberly     November 5, 2012

Just how much importance should an organization’s c-suite and security management team attach to an insider’s (a.) nationality, (b.) motive(s), and (c.) possible conspiratorial and/or state-sponsored components effecting a successful act in which…

….valuable, competitive advantage, and market space delivering information-based (intangible) assets are stolen or misappropriated?

Would it be more useful to devote time, energy, resources, etc., to executing the most effective enterprise-wide policies, practices, and procedures to…

  • identify and sustain control, use, ownership, and monitor the value and materiality of a company’s most valuable and revenue producing (intangible) assets, and
  • ferreting out would be insiders regardless of their nationality or country of origin?

Willie Sutton, the infamous bank robber, according to urban legend, responded when asked, ‘why do you rob banks’ in very straightforward and simplistic fashion, ‘it’s because, that’s where the money is’!

In a perverse sort of way, and, of course, setting aside classified national security assets, Sutton’s view and mine are similar in this context; U.S.-based intangible (intellectual property) assets are frequently, if not wholly targeted because, globally speaking, this is where large percentages of such assets originate and developed.

So, why should it come as any particular surprise that U.S.-based intangibles are targeted by insiders, trusted, or otherwise, by various nationalities.  Generally, the suspects (by nationality) are demonized in the media and other sources, when in fact, it’s virtually certain the victim organizations – companies will seek new/additional trading opportunities or business transactions with those countries (nationalities) tomorrow and for the foreseeable future.

In all the research I have and continue to conduct and experiences I have had in various aspects of economic/industrial espionage and addressing insider threats and risks, I am familiar with very few companies which have elected to withdraw their business associations with a country and/or its government following a theft and/or misappropriation of proprietary intangible assets.  That’s not to suggest victim companies overlook or dismiss such events.  Rather it is to suggest lucrative business opportunities associated with numerous countries in which insiders frequently originate can be discounted literally and figuratively.

One example, among countless others, bears this out quite nicely.  Several years ago, a U.S. based computer manufacturer established three new assembly sites in Asia.  Before the sites’ became operational a senior executive projected her company would lose in excess of $125 million dollars in ‘IP’ during the relatively short life cycle of these particular assembly plants.

There is, to be sure, more ‘ink and talking heads’ focusing on the China link, as being the primary initiator, collector, and beneficiary of stolen and misappropriated IP.

What is disconcerting about this in my view, are the increasingly sophisticated technologies used by an ever expanding range of state sponsored and independent brokers that, in many respects, render the term ‘insider’, as it is conventionally applied, outmoded, if not obsolete.  That is, (human) presence is simply no longer an absolute requisite to the range of illegal acts which insiders can successfully engage.

However, will – would a company who reports being victimized by an insider, e.g., Dyson v Bosch, for example, in which, it so happens, the alleged perpetrator is of Chinese origin, done anything differently in terms of how they designed and implemented their insider threat mitigation practices, policies, and procedures?

In today’s increasingly interconnected global business transaction environment, there is a high level of universality in the economic fact that 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, sustainability, profitability, market space, and competitive advantages  lie in – evolve directly from a range of intangible assets.

Companies may have far greater success in mitigating insider threats and risks when such acts/behaviors are characterized in particular relationship contexts, i.e., vendors, trusted personnel, or more specifically, relationship, structural, and intellectual capital.

But, a question remains, for me at least, can insider threats – risks be more effectively mitigated if they focus on an employee’s nationality and that nationality’s propensity, receptivity, and/or proclivity to be part of, or engage in insider acts in a state sponsored context?  And, if one believes it can, would the product of the overall insider threat/risk mitigation initiatives, i.e., implementation of policies, procedures, and practices really look any different?

More specifically, is there a need to design/execute insider threat – risk mitigation practices differently if the target company assumes the threat evolves primarily, if not solely from state-sponsored sources, independent (legacy free) brokers, or disgruntled employees?  The answer to this question, in my view, is a prudent and somewhat cautious yes!

The business reality I have come to know, is that very few companies are eager or willing to jeopardize relationships with several billion potential  consumers and those country’s rapidly rising middle class, based solely on the inevitability they will lose certain amounts of their valuable intangible – intellectual property assets.

Of course, I am certainly not implying that companies should be less prudent in designing and executing any market entry planning and/or business transaction with firms in other countries.

But, readers please recognize, it’s not solely a company’s IP which a large percentage of insiders are seeking, i.e., patents, copy rights, trademarks, rather it’s the intellectual and structural capital, the knowhow, and the processes and procedures necessary to achieve economic and competitive advantage.  I’m quite confident, for those who disagree, will be constantly engaged in uphill skirmishes in which periodically a war or two may be one, but seldom, if ever will the persistent and asymmetric (insider threat-risk) battles be won!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, 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. And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

Insiders and Moles: Stealing Company Secrets…

November 1st, 2012. Published under Insider Theft of IP and Intangible Assets, Insider Threats. No Comments.

Michael D. Moberly   November 1, 2012

As reported by the AP last week, Dyson, a large UK-based firm, known most for its bag-less and ball mounted home vacuum cleaners, filed legal proceedings against Bosch, a German competitor.

The legal action accused Bosch of having illegally obtained Dyson secrets, i.e., ‘digital motor technology’ through the efforts of an ‘insider’ working in Dyson’s R&D unit for perhaps as long as two years, according to the AP report.

Dyson spokesperson characterized this insider as a ‘rogue engineer or mole’.  On behalf of myself and numerous highly experienced (insider threat) colleagues, I’m confident we would all be hard pressed to suggest the term ‘rogue’ is an appropriate descriptor for such acts and/or behaviors.   For us, ‘rogue’ implies a single or otherwise one-off experience, whereas we, based on sound research and personal experience are inclined to characterize insider threat(s), in which there is no shortage, as being persistent, globally asymmetric, generally sophisticated technologically and personally, and come embedded with numerous tangible – intangible (personal) motivators for doing what they do.

Interestingly, the AP reported, Dyson had confronted Bosch with evidence of the wrongdoing but Bosch…

  • refused to return the alleged misappropriated (digital motor) technology, i.e., intellectual property, and
  • failed to promise it would not to use the acquired know how or technology for its benefit, even though reports indicated Bosch had already benefitted.

These adverse responses from Bosch obviously left Dyson’s legal representatives – advisors with few reputation saving options, other than to take the legal action it did.

Is the term ‘mole’ an appropriate descriptor of insider threat today?   To be sure it is!  In the court filings, Dyson also alleged that Bosch paid this individual (aka the mole) through a separate (unincorporated) business that apparently had been created precisely for such purposes, which is, presumably to exploit – execute insider risks and threats, which it is further alleged, certain senior Bosch management were well aware.

Bosch disputed, or at least tried to mitigate some of the allegations, one of which pointed out that Dyson had employed this individual, i.e., the mole, with a preexisting consultancy agreement with Bosch Lawn and Garden Ltd. in relation to garden products, and not vacuum cleaners or hand dryers.  Too, Bosch, expressed regret that Dyson had elected pursue legal action in this matter, saying it has been trying to establish what happened and what, if any, confidential information was supposedly passed and/or actually received.

Should Dyson’s allegations eventually be established (proven), it would be no great surprise to see some manner of economic settlement in advance of a trial.

Before finishing though, I hold a somewhat different view about what Dyson’s competitor was likely (actually) targeting in this instance, and it should not be simply described as intellectual property!.

As stated numerous times in this blog, I have worked, studied, and conducted much research on intangible assets relative to economic/industrial espionage in many different circumstances over the past 25+ years.  A deep understanding (business appreciation) of global economic – competitive advantage adversaries, suggests any insider threat – risk equation should absolutely include an adversary’s ability to understand and/or replicate the intangible assets they frequently target and successfully acquire, i.e., the intellectual and structural capital and know how that’s embedded in any alleged misappropriated or stolen intellectual property.

After all, it is an economic fact – business reality that intangible assets today, comprise 65+% of most company’s value, sources of revenue, and building blocks for growth, sustainability, and profitability. It seems quite correct then to state with much conviction, that the intangible assets which are absolutely essential to achieving competitive advantages, building product/service quality, creating efficiencies, and achieving market position are what’s being targeted, not merely IP, other than, of course trade secrets.

There’s no question, companies – competitors engaged in using stolen intangibles, do so because they have, in most instances, an equally strong desire to compete globally and in the same market space as the rightful holder, owner, and/or developer of the valuable and competitive advantage driving intangible assets being targeted.

Know how (intellectual capital) can, to be sure, be classified as proprietary information or trade secrets (providing the holder consistently executes and meets the six requisites of trade secrecy). Either way, I can confidently report that companies would be well served if they identified and safeguarded the contributory value of the intangible assets that underlie all of their IP, because that’s what the adversaries need, want, and seek most!

So, to effectively mitigate insider risks-threats, the contributory value of intangible assets companies produce, should become a routinely visited, if not a permanent fixture on every company’s c-suite agenda!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, 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. And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com