Archive for January, 2013

Russian Companies and Value Creation: The Role of Intangible Assets

January 24th, 2013. Published under Analysis and commentary, Business Applications. No Comments.

Michael D. Moberly   January 24, 2012

I believe it’s necessary, if not essential that c-suites, boards, and management teams of U.S. based companies periodically take the time to look beyond the confines of their firm and personal-professional business experiences to seek out and study not merely what other countries, and their businesses/companiesare doing in the intangible asset arena, but also learn what and how those firms and their leadership are accommodating, interacting with, and otherwise engaging the global knowledge-based economy, that is unmistakably dominated by intangible (non-physical) assets versus tangible (physical) assets, where the former serves as the overwhelmingly dominant sources of value, revenue, and competitive advantage.

One such fine paper, I encourage others to ready and study is one co-authored by Drs. Tatiana Garanina and Dmitry Volkov, (both faculty members in the School of Management at St. Petersburg University) appropriately titled ‘Value Creation in Russian Companies: the Role of Intangible Assets’.  It is a timely paper!

In today’s vacillating and changing economy, the authors repeatedly make the point that management teams of leading companies are more apt to acknowledge and understand that the key sources for a company’s value creation are irreversibly rooted in its intangible assets.  Certainly, no argument here!

Quite interestingly, the manner in which the authors offer up this perspective is that….

  • as much as one third of all the effected investment solutions (in Russia) are based on a company’s existing intangible assets, and that
  • business decisions made on the basis of intangible assets allow management teams to make a more accurate prediction of income and profitability regarding their company in the future, and thus, projecting the company’s value for shareholders.

Equally relevant and timely elements of their paper, which the authors address, from a definitional perspective, are intangible asset composition and structure in which, through their analysis of 43 (sampled) companies, they distinguish intangibles into five aggregated fields, i.e.,

  1. mechanical engineering
  2. extractive industry
  3. power engineering
  4. communication services, and
  5. metallurgy.

Admittedly, this is a little different from western perspectives.  But, value creation through intangible assets, particularly in the previous decades, the authors state, represent new conditions for business development, but, which have not led to success for those companies which continue to rely on traditional/conventional tangible (physical) assets such as properties, labour, financial capital and other physical resources.

Such companies, the author’s note, are less able to cope with the aggressive and highly competitive market ‘rules’ which they advocate, further represents the importance and relevance of intangible assets by recognizing them as drivers of value and sources of competitive advantage.

Logic, they say, related to business in the knowledge-based (global) economy is advanced primarily by consistently achieving more…

  • favorable (business, transaction) outcomes, and
  • longer term (strategic) successes
  • through better value-creation through intangible assets.

Now, the authors submit that leading companies are trying to achieve not just cost reductions but value creation, which translates, in the author’s view, as reductions in the value of tangible assets, which, not-so-coincidentally advances another trend, which is the production of mostly intangible assets such as knowledge, know-how, and creativity, etc.

Another very astute point expressed by the authors is that, in their view, a key challenge for management teams and c-suites now is to create and develop the conditions that will allow them to increase the value of (their) intangible assets and therefore the value of the entire company!  That’s certainly true globally.

The intangible character of a growing percentage of (company, business) assets, the authors contend, is that not all intangibles are reflected on company balance sheets and/or financial statements, thus, they are not visible in a traditional (physical) sense. Sveiby, (1998) reportedly said that intellectual capital is “knowledge that can be converted into value”. Hence, the authors argue, only “intangible” value provides companies with opportunities to differentiate themselves from their competitors, thus, only managing a company’s intellectual capital properly will allow a company to achieve and preferably sustain competitive advantages over their rivals.

Perhaps, one of the more profound and thought provoking statements the authors make, is related to the composition and structure of intangible assets, i.e., intellectual capital. In many other research papers I have read, authors describe the ‘structure’ of intangible assets and try to define the primary component that (most) affects its market value. The authors claim there is no known uniformity, i.e., means, mechanisms, etc., to address this problem, at least in these researchers’ environment.

The paper is certainly not without its provocative perspectives put forth by its authors.  One example are their views on market capitalization value over periods of time. Even though, a number of theoretical works have stressed the strategic importance as well as the role of intangible resources as key value drivers for company’s competitiveness (Edvinsson, Malone, 1997; Sullivan, 2000; Wenner, LeBer, 1989); there remains, the authors believe, a lack of approaches that evaluate the mechanism by which these (intangible) resources actually contribute to create value (Carlucci, Schiuma, 2007). This is, they say, because of the idiosyncratic nature of these (intangible) assets (Hoskisson et al., 1999; Lippman, Rumelt, 1982).

As a result, the authors conclude more studies are needed in order to better understand…

  • the relationship between intangible assets,
  • the way these assets are clustered, and
  • their role in value creation.

Note:  This post represents a respectful adaptation of part of Drs. Tatiana Garanina and Dmitry Volkov’s paper titled ‘Value Creation in Russian Companies: The Role of Intangible Assets’. Both authors are members of the faculty at St. Petersburg University, in Russia.

My blog posts are researched and written by me with the genuine intent they serve as a worthy and respectful venue 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 information, unsubstantiated commentary, or single paragraphed platforms to reference other media. 

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any 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.

Safeguarding Intangible Assets!

January 23rd, 2013. Published under Intangible asset protection, Intellectual capital management.. No Comments.

Michael D. Moberly    January 23, 2013

1. Intangible asset safeguards, particularly those directed to intellectual, structural, and relationship capital, should include provisions for rapid maneuverability to (a.) reflect-address changes in asset value, risk, and vulnerability, and (b.) reflect the assets’ life and functionality cycle. Most information asset safeguards and risk mitigation initiatives tend to remain constant throughout the life, value, and functionality cycle of the specific asset(s) being protected and regardless of routine changes most of those assets’ will inevitably encounter, i.e., contributory value to current or future company projects as well as risk.

Exacerbating this today’s is the increasingly aggressive, competitive, and predatorial global business (transaction) environment, in which the value and relevance (useful life-value cycle) of intellectual, relationship, and structural assets routinely experience uniquely compressed time frames for utilization relative to their relationship and contribution to specific (new company) initiatives, tasks, processes, and operations.

It’s prudent then, for the design and implementation of information asset safeguards to incorporate the capability of being maneuverable, i.e., to increase or decrease the level of protection warranted to reflect fluctuations in, not only an assets’ value and relevance, but asset risks, threats, and vulnerabilities.

2. Avoid ‘pushing what should be done off the table’! Each day companies are presented with an array of risks, threats, and challenges which often get translated as being urgent and therefore opportunities (pressure) to push what should be done off the table. At least one consequence of pushing ‘what should be done’ off the management team (c-suite, boardroom) table (agenda) is that companies will direct disproportionate attention to the proverbial internal – external choruses, which offer, in my view, largely speculative, worst-case scenario, and/or snap-shots-in-time assessments of risks, threats, and vulnerabilities.

Due to potentially devastating (enterprise-wide) consequences which intangible asset risks, threats, and vulnerabilities can produce almost instantaneously, I strongly discourage companies from dismissing them, but, neither should they serve as subjective, ‘knee jerk’ rationales for indiscriminately implementing sweeping and costly (intangible asset) safeguards absent, at minimum, cursory research to ensure they’re neither subjective nor snap-shot-in-time anecdotes.

Instead, adopting forward looking and objective (intangible) asset safeguard strategies linked to an assets’ contributory value and its functionality cycle rather than narrowly focused, time-bound, and anecdotal assessments is the most effective, efficient, and prudent approach.

3. Foster relationships! Any initiative to safeguard a company’s intangible (intellectual, structural, relationship capital) assets must absolutely include capabilities to sustain (a.) control, (b.) use, (c.) ownership, and monitor (d.) value, (e.) materiality, (f.) sustainability, and (g.) risk.

To achieve the desired level of success, any such initiative must also include fostering collaborative (internal and stakeholder) relationships. This can occur by ensuring the assets’ originators, developers, users, and owners have been properly and effectively engaged at the outset, i.e., earliest stages of development and/or acquisition, as the impetus for literally assuming ‘ownership for success.

Unfortunately however, some company’s tend to be exclusion oriented and unreceptive to fostering collaborative relationships for their valuable intangible assets.  Occasionally, this evolves from the misperception that computer/IT system security equates with, or worse, eclipses intellectual capital (asset) safeguards which is often rooted in the misconception that all valuable (company) information exists solely in electronic ‘bits and bytes’ and is safely stored in stationary servers, back-up sites, or ‘clouds’.  Those who hold or cling to such perspectives seem to be oblivious to the economic fact – business reality that today, 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, sustainability and profitability evolve from – lie in intangible assets!

Make no mistake I’m certainly not suggesting computer/IT security is not absolutely critical to every company, particularly as target specific risks/threats are rapidly becoming much dreaded and a potentially devastating norm. That said, in my view, computer/IT security would be better understood as being complimenting to, rather than dominating, company strategies and initiatives to safeguard valuable and proprietary intellectual, relationship, and structural capial intangible assets.

My blog posts are researched and written by me with the genuine intent they serve as a worthy and respectful venue 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 information, unsubstantiated commentary, or single paragraphed platforms to reference other media. 

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any 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.

‘Harvesting Intangible Assets’…A Review of Andrew Sherman’s Book!

January 22nd, 2013. Published under Book Review, Intangible asset training for management teams., Intangible Asset Value. No Comments.

(Harvesting Intangible Assets: Uncover Hidden Revenue In Your Company’s Intellectual Property  by Andrew J. Sherman)

Michael D. Moberly   January 22, 2014

Let me say at the outset, the perspectives put forth here regarding my assessment of Andrew Sherman’s ‘Harvesting Intangibles’, are dually rooted, first in a careful study of Sherman’s book, and second, a personal conversation (meeting).  Unmistakable takeaways of both are clear; Sherman literally radiates a strong passion for intangible assets! Too, he has the requisite practical knowledge, operational familiarity, legal training, and strategic visioning to effectively ‘bring it altogether’ and intersect intangible assets with positive business (transaction) outcomes.  Sherman truly recognizes and consistently conveys throughout his book, the increasingly strategic role intangibles play in companies (globally) as contributors to and generators of value, revenue, and sustainability.

To be sure, Sherman has very deservedly accumulated the requisite ‘street creds’ as many readers of this blog recognize him as a much respected, articulate, and forward looking thinker, and practical tactician in the intangibles’ arena, e.g., named by Fortune as one of the ‘Top Ten Minds in Small Business’ and Inc. magazine recognized him as one of the 19 leading resources and advocates for growing companies, of which intangible assets are clearly an important component.

‘Harvesting Intangibles’ is replete with Sherman’s sage counsel regarding the nexus of intangible assets and business.  This clearly and most properly positions him to be one of a respected handful of global ‘go to professionals’ on intangibles, particularly the millions of small, mid-size, early stage, and start-up firms, which concurrently form the foundation to the education and training company, ‘Grow Fast, Grow Right’ that he founded.

Sherman built ‘Harvesting Intangibles’ on a distinctive and understandable ‘agrarian’ metaphor platform in which he describes intangibles as being (a.) planted (developed or acquired), (b.) nurtured (cared for and integrated), (c.) safeguarded (protected), and of course (d.) harvested (applied, commercialized, and/or monetized) at opportune times.  This sequence is necessary, Sherman advocates, as the most correct path to maximize intangibles’ contributory value and sources of revenue, which most are capable.

Throughout ‘Harvesting Intangibles’, Sherman respectfully pushes many conventions (i.e.,past practices, antiquated attitudes) off the table by demonstrating that (a.) attitudes, i.e., this is the way it’s always been done, and if it doesn’t seem to be broken, why try to fix it, now?, and (b.) practices, i.e., balance sheets are an archaic measure of any company’s true intrinsic value, and are no longer well-suited for operating knowledge (intangible asset) intensive businesses.

Another strong positive is that Sherman uses a distinctively normative, but respectful, style (i.e., metaphors, language, etc.) to articulate his ideas, positions, and perspectives to aid readers, some of whom may be, up to this point, operationally unfamiliar with or disinterested in intangibles.  That includes not just c-suites and boards, but business unit management teams as well.  Of course Sherman’s objective is to respectfully aid them to more effectively identify, capture, and exploit the value and other contributory elements of (their) intangible assets through better asset management, stewardship, and oversight practices.

Too, Sherman has integrated numerous informative graphics and visuals in ‘Harvesting’ that are not merely modified replications of others’ work.  Instead, each graphic/visual can be readily grasped and conveys a positive strategic, rather than a fear orientation, which in my view is precisely the tact to take.  Equally favorably, Sherman’s graphics and visuals can be interpreted and framed by management teams for (asset) comparison and/or measurement-performance purposes.

As with many books, relatively small things resonate with readers that collectively set a book aside from it competitors.  One such example is that Sherman commences each chapter with a relevant and thought provoking quote which I found especially compelling and relevant to those of us who are truly ‘boots on the ground’ intangible asset practitioners.  For example, a quote attributed to Charles Browder (Chapter 6) is a follows…

“a new idea is delicate…it can be killed by a sneer or a yawn…it can be stabbed to death by a joke, or worried to death by a frown on the key person’s face.” 

For most intangible asset advocates and practitioners know this caricature represents as unfortunate business reality and have likely experienced it personally on numerous occasions. This example, along with countless others, already eluded to further reveals Sherman’s passion for and understanding of intangible assets.  Too, it adds much needed clarity that will respectfully elevate management teams’ operational familiarity with intangibles relative to (a.) their development, (b.) how they can be best exploited, and (c.) the all-important value proposition for a range of business sizes and sectors.

To address this further, Sherman includes countless real and thought provoking examples of  actual ‘harvesting intangibles’ to provide readers with practical insights which can be rapidly and efficiently applied by seasoned business leaders who recognize the rapidly expanding (fiduciary) responsibilities associated with managing and exploiting intangible assets.

Those still unfamiliar with Sherman’s work should not conclude ‘Harvesting Intangibles’ merely represents a ‘one hit wonder’.  Sherman has published numerous other books and articles of this caliber, many of which press a solidly framed business orientation for intangible assets to forever advance his unique theme of ‘harvesting intangibles’.

As readers of this blog know well, I am a strong advocate of intangible assets.  Such advocacy, as Sherman articulates so well, comes with responsibilities which ‘Harvesting Intangibles’ elevates, due in no small part to Sherman’s training and expertise in intellectual property matters.

And finally, who should be reading, not just ‘Harvesting Intangibles’, but other works of Sherman?   For me, the answer is straight forward, that is, most all have relevancy in university classrooms as well as company boardrooms!

Ultimately, a message I trust readers of ‘Harvesting Intangibles’ will quickly and readily recognize by page five, is that clinging to conventions of past practice that ignore, dismiss, or otherwise underestimate the role and contributory value of intangible assets and the responsibility to consistently and effectively engage them will lead to business adversity vs. business sustainability and profitability.

To be sure, Sherman’s book is certainly not one of the growing numbers of books that I, not-so-respectfully categorize as the ’10 easy steps from rags to riches in one minute per day’.  Instead, Sherman’s book is embedded with relevant, timely, and real knowledge framed in a manner that will not just add reasoned value to readers, but again, provide a viable and strategic path to more complete utilization of most every company’s intangible assets.

Harvesting Intangible Assets: Uncover Hidden Revenue In Your Company’s Intellectual Property  by Andrew J. Sherman.  American Management Association, 2012  (ISBN – 13: 978-0-8144-1699-0)

My blog posts are researched and written by me with the genuine intent they serve as a worthy and respectful venue 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 information, unsubstantiated commentary, or single paragraphed platforms to reference other media. 

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any 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.

University-Based Research: The Necessity To Safeguard Intellectual and Structural Capital!

January 7th, 2013. Published under University R&D, University Technology Transfer. No Comments.

Michael D. Moberly   January 7, 2013

University technology transfer units and faculty researchers are obliged now, more than ever, to think differently about safeguarding their intangible assets and intellectual properties…

 The rules of engagement in the world of entrepreneurism and scientific/commercial R&D have changed largely due to the persistent, predatorial, and ultra-sophisticated threats and risks emanating from legacy free independent players as well as state sponsored intelligence and data mining entities which are unfortunately far too often misunderstood, naively discounted or omitted from information, IP, and intangible asset protection, risk management, and oversight equations.

Initiatives (programs) to effectively safeguard and manage these key assets need to be holistic, i.e., from start to finish, and include practices to elevate awareness to and otherwise mitigate this ‘always on’ global dilemma.

Most universities’ technology transfer landscape is now shaped almost exclusively by the development and flow of intangible products and services, i.e., the flow of information, know how, and other forms of intangible assets.  Similarly, university and institutional value has literally shifted away from collections of physical (tangible) assets to collections of intellectual, structural, and relationship capital which have become valuable and standalone commodities for which sustaining control, use, ownership, defensibility and consistently monitoring value are essential to technology transfer, commercialization, and other monetization initiatives.

Universities, faculty researchers, and technology transfer units need to think differently about past practices and conventions!  The laws associated with intellectual property protections and enforcements are largely reactive, not proactive, and typically apply after, and if, protected information asset (IP) losses, i.e. infringement, misappropriation, and/or theft have occurred and ultimately become known to their originator, owner, and/or holder.

For example, when research commences and if/when a patent may be issued, faculty researchers, research administrators, and technology transfer units are dependent on their (a.) respective levels’ of awareness to the assets’ vulnerability to loss or impairment, i.e., through compromise, infringement, misappropriation, and counterfeiting, etc., and (b.) willingness and resources to aggressively pursue suspected wrong doers in a timely and aggressive manner.

In other words, all university-based research in my view, is obliged to reflect today’s very real, persistent, and asymmetric vulnerabilities and threats.  To achieve this, intangible asset protection and monitoring practices must be much more proactive and put in in place on the front end in order to sustain control, use, ownership, and monitor value, materiality, and risk.  After all, in conventional venture capital forums, as well as the increasingly trendy and accepted (patent) auctions where much university-based research gravitates and brought to the attention of venture capitalists, key and prudent questions posed have to do with not just the proverbial ‘what’s your IP position’, but they drill deeper to assess the status, defensibility, and vulnerability of the research (intangible asset) product.  Too be sure, it is imprudent, if not irresponsible to not have a compelling and authoritative response.

My blog posts are researched and written by me with the genuine intent they serve as a worthy and respectful venue 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 information, unsubstantiated commentary, or single paragraphed platforms to reference other media. 

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any 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.

Trade Secrets Are Intangible Assets: Leahy Fixes the Economic Espionage Act!

January 4th, 2013. Published under Economic Espionage, Insider Theft of IP and Intangible Assets. No Comments.

Michael D. Moberly    January 4, 2013

In April (2012) a decision by the Second Circuit court significantly impacted a key element of the Economic Espionage Act (EEA) by reversing the criminal conviction of Sergei Aleynikov, a former Goldman Sachs programmer who had been caught, as they say, ‘red handed’ stealing, trading software code.

The court refused to apply the EEA to this case because the stolen trade secret(s) failed, in Court’s judgment, to satisfy EEA’s interstate or foreign commerce provision, thereby overturning a jury verdict that found the defendant violated 18 U.S.C. § 1832(a) by stealing computer code from his employer, i.e., United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012).

In its reversal, the Circuit Court reasoned that ‘the high speed trading code stolen by Alevnikov from his employer, were not a product (presumably, originally) designed for interstate or foreign commerce’ which readers know, are elements required for EEA prosecutions.

So, Senator Leahy (Chair, Judiciary Committee) in response to this court’s decision, authored an amendment that slightly modified Section 1832(a) of the EEA.  Leahy’s bill brought timely (futuristic) clarity to the EEA by expanding its scope to protect all trade secrets related to a product or service that are used in interstate commerce, which duly repaired the now aptly named ‘Sergei Alevnikov gap’.

Simply stated, with the critical ‘word smithing’ in Senator Leahy’s bill now covers (trade) secrets related to a product or service that have come to be ‘used’, but may not have been originally/initially designed for interstate or foreign commerce.

An equally critical, but not formally acknowledged underlier to this important amendment to the EEA in my view, is the economic fact – business reality that today 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets, of which trade secrets are one!  So perhaps inadvertently, Leahy’s bill did much more than merely close the so-called ‘sergei alevnikov’ gap.

On December 28, 2012, President Obama signed the EEA amendment (SB 3642).

But, for intangible asset advocates, strategists, and security practitioners like me perhaps it’s a bit premature to engage in celebration, that’s because

  • it is quite conceivable a Constitutional challenge may be in the offing that contests Congress’s Commerce Clause authority to enact legislation that imposes criminal penalties, as Leahy’s legislation does, and
  • as most readers already know, earlier this year, PATSIA (Protecting American Trade Secrets and Innovation Act) was introduced in the Senate (SB 3389) which would provide a civil right action for trade secret theft under the Economic Espionage Act.

Many, including myself, remain unclear whether  PATSIA will actually confer (significantly) more protection than the existing USTA  (Uniform Trade Secrets Act) because both the USTA and PATSIA, (a.) define “misappropriation” in precisely the same way, (b.) both define “trade secrets” broadly, and (c.) both provide most of the same remedies, i.e., (1.) injunctive relief, (2.) actual damages, (3.) damages due to unjust enrichment, (4.) exemplary damages in the event of a willful misappropriation, and (5.) attorney’s fees for claims brought or resisted in bad faith.

That said, PATSIA does actually differ somewhat from the UTSA in two ways that would, in spite of the aforementioned similarities, make it a useful addition to companies and institutions seeking to develop – pose a more convincing and probable special deterrent to the various globally predatorial and economic – competitive advantage adversaries who are already inclined to mount increasingly sophisticated initiatives to steal competitor’s trade secrets.  Ultimately, it seems the amended EEA, along with PATSIA and USTA now collectively provide a substantial triad of potential remedies, when, not if, trade secret and/or intellectual property theft occurs.

Interestingly, PATSIA, unlike the USTA, would authorize federal courts to order (a.) the seizure for up to 72 hours of property related to the misappropriated trade secrets, and (b.) provide for an expedited hearing to determine the property’s disposition.

This seizure option would apply to “any property (including computers) used or intended to be used, in any manner to commit – facilitate the commission – violation of trade secret theft.

Importantly, the ability to seize misappropriated properties would allow victim companies to mitigate or possibly avoid some of the traditional frustrations of merely seeking redress after the fact, or of obtaining injunctive relief, which we know there is considerable uncertainty as to its effectiveness.

Another intent for addressing these distinctions and similarities (between the EEA, USTA, and PATSIA) is, as many readers painfully know all too well, is to draw attention to conventional TRO’s (Temporary Restraining Orders) and TRO’s that allow for the immediate seizure of theft-related property.  To be sure, when dealing with unscrupulousness, globally predatorial, and legacy free players engaged in IP and proprietary information theft regardless of their origins or motives, the (latter) strengthened TRO can be an effective tool.

Ultimately, it appears that victim companies of trade secret theft-misappropriation are going to have substantially enhanced and a wider range of remedies available which hopefully will (a.) produce the correct deterrent effects, and (b.) create more viable avenues for effective resolutions to such claims.

But, given these apparent positives in the persistent battle of safeguarding proprietary information and trade secrets, it will behoove every c-suite, board, and management team member to appreciate this well founded adage regarding trade secret theft, which is…

 ‘once stolen or misappropriated, its often challenging and certainly costly to secure the return of these intangible assets, and seldom are they fully intact if a victim company is fortunate enough to do so, and too, a victim company can count on a long, slow, expensive, and resource demanding path to return to a state of economic and competitive advantage normalcy’!

So, the takeaway is; devote resources to developing and executing superior information (intangible) asset safeguards designed specifically to sustain control, use, ownership, and monitor asset value, materiality, and risk at the outset.  Otherwise, the value, revenue, competitive advantages, and building blocks for (company) growth, profitability, and sustainability can quickly go to zero!

(This post was inspired by a piece in ‘Sullivan’s Trade Secrets’ authored by Todd Sullivan of Graebe, Hanna & Sullivan.)

My blog posts are researched and written by me with the genuine intent they serve as a worthy and respectful venue 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 information, unsubstantiated commentary, or single paragraphed platforms to reference other media. 

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any 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.

2013: Aquiring The Real Picture Of Company’s Financial Health…

January 2nd, 2013. Published under Intangibles as strategic assets, Investing in intangible assets.. No Comments.

Michael D. Moberly   January 2, 2013

An often overlooked or dismissed requisite to acquiring a complete picture of a company’s financial health is recognizing the intangible assets a company produces, possesses, and their contributory value.  As readers know, balance sheets are financial reports, steeped in tradition as being (perceived) as the primary, sometimes sole, descriptors of ‘the health’ of a business or company in terms of constituting a quick sound bite of the value of its (a.) assets, and (b.) liabilities, along with describing equity positions of owners or stockholders.

As an intangible asset advocate and strategist though, seldom do I become engaged in a discussion about the propriety or usefulness of disclosing – reporting intangibles on balance sheets or financial statements, that it’s not necessary, at some point, to respectfully introduce a challenger to three irreversible economic facts and business realities…

  1. intangible assets are just that, they’re intangible, i.e., non-physical.  Translated, this means intangibles are not necessarily subject to the five (physiological) senses of touch, smell, hearing, sight, or taste as tangible (physical) assets are, but, nevertheless are relevant and valuable properties and assets which take many forms, i.e., reputation, competitive advantages, intellectual property, brand, etc., for which there is no argument, nonetheless…
  2. a growing percentage of businesses, regardless of size or sector function – operate in a knowledge (intangible asset) based global economy in which, at minimum, 65+% of their value, sources of revenue, and ‘building blocks’ underpinning their growth, sustainability, and profitability evolve directly from intangible assets.  This represents an acknowledgment that…
  3. examining a company’s balance sheets and/or financial statements alone, particularly those that do not address (report) intangible assets, do not convey a sufficiently deep or comprehensive picture of a company’s real financial health which are critical components/factors to making sustainably lucrative (business) decisions!

Businesses/companies own different types of property or assets, a lesser portion of which are physical-tangible in nature, while a growing percentage are intangible – non-physical, the latter being seldom, if ever, distinguished by category and reported as such.  The reasons are numerous, with most rooted in accounting methodologies and regulatory agency rules.

Interestingly, Craig Woodman a writer for eHow, points out that, in practice, a balance sheet is usually presented in a list format, with assets at the top, then liabilities, followed by owners’ equity.

Conventionally speaking, Woodman reports, accounting rules stipulate that assets be differentiated into classes or categories, i.e.,

  • current assets are business assets that are the most liquid which means they can be reasonably and readily converted to cash in a relatively short amount of time, typically within one year. Examples of current assets are cash of course and accounts receivable, both of which are assets that fund the day-to-day operations of a business.
  • fixed assets, on the other hand, are such things as real estate or equipment. In other words, they’re physical or tangible assets and are typically less liquid, i.e., take longer to convert to cash.
  • interestingly, Woodman does not place intangible assets into a separate category, and instead, considers them to be fixed assets, because, Woodman claims, like ‘current assets’ they are more difficult to covert to cash.

To Woodman’s credit, and I agree fully, any member of a management team, c-suite, or board who genuinely wants to determine/assess the ‘real’ health and/or condition of a business or company, absolutely must identify, unravel, and assess the contributory value of the intangible assets (the company) has developed, nurtured, produced, and possesses.  But, here is where I disagree with Woodman, it does not have to be that difficult to establish/determine the value of intangible assets, providing one understands and can unravel their ‘contributory value’, and conclude intangibles do not routinely constitute an inaccurate or inflated valuation.

But, in business transaction circumstances in which my counsel is requested, I consistently argue that decision makers, relative to their buy-don’t buy, invest-don’t invest decision, are obligated, in a fiduciary context, to do much more than merely ‘kick the tires’, which through my admittedly biased lens, translates as looking deeper and more comprehensively beyond balance sheets and financial statements to determine a company’s real (financial) health.

That’s why, if I was inclined to purchase a pre-owned or otherwise used automobile, my buy – don’t buy decision would be only partially based on the presence of a service/maintenance record that indicated the previous owner had the motor oil changed at prescribed intervals.  A wiser buyer, in my view, should look for and investigate the countless ‘intangibles’ related to motor vehicle operation, care, and maintenance that can, and usually do, favorably or adversely impact a vehicle’s sustainability and reliability.

Again, intangible assets are ‘things’ which a business owns, but, of course, are neither tangible nor physical (property) as some still persist on framing them.  Nevertheless, these assets have value, and should be investigated and assessed, or otherwise accounted for in any business transaction.  In other words, intangible assets are, in one sense, comparable to the purchase of a pre-owned automobile, in which a buyer presumably calculates benefits will be realized because of the lower purchase price, but without a thorough and knowledgeable investigation may translate as frustration-based expensive repairs.

So, in my view, to purposely exclude intangible assets from a company’s – businesses’ net worth calculations, will not provide prospective investors or buyers with a ‘real or complete’ picture of a (a.) company’s value, (b.) it’s status among sector competitors, and equally important, (c.)  its ‘internal building blocks’ to achieve and sustain competitive advantages, sustainability, profitability, and foundations for future wealth creation, etc.

My blog posts are researched and written with the intent they serve as a worthy and respectful venue to elevate awareness and appreciation, throughout the global business community, regarding the identification, use, contributory value, and measuring the performance of intangible assets.  My blog posts are not intended to be quick bites of information, unsubstantiated commentary, or single paragraph-based platforms to reference other media. 

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any 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.