Archive for August, 2013
Michael D. Moberly August 25, 2013 ‘A blog where attention span matters’.
It’s not merely unsubstantiated marketing jargon. The phrase ‘knowledge, intangible asset-based global economy, and the economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth and profitability evolve from intangible assets are real. Management teams’ reluctance to recognize and aggressively engage this economic fact and business reality are respectfully, but most assuredly, ‘behind the curve’.
The truth does not lie somewhere in the middle. One would think that economic fact, standing alone, fiduciary responsibilities aside, would be sufficient inducement for management teams to immediately engage their intangible assets. Unfortunately, for various reasons, few management teams have achieved sufficient operational familiarity with intangible assets in general, or their intangible assets in particular. Instead, some still find intangibles’ unwieldy, challenging to grasp, and difficult to assess, differentiate, and effectively utilize and therefore are reticent to open this proverbial ‘can of worms’. Challenges also are in part due to intangibles…
- lack a conventional physicality
- are seldom, if ever, included in business school curricula, and
- are seldom, if ever reported on company balance sheets or financial statements, unless they’re bundled together under the accounting catchall of ‘goodwill’.
In today’s tightly wound, highly compressed, and increasingly aggressive and predatorial (global) business transaction environment, management teams that continue to overlook, be dismissive of, or routinely hand-off intangible asset issues to legal counsel or accounting departments, are respectfully obliged to read further!
Intangible assets can expand and mature very rapidly within a company. If not recognized, developed, safeguarded, and monitored from the outset, the probability they will be at risk to compromise, misappropriation, or meld into open – public domain sources is predictably high. And, once a company’s intangible assets, whatever form they may take, i.e., unique knowhow and/or competitive advantages, etc., enter the public domain, re-covering their real (full) contributory value, uncontested use, and competitive advantages will be costly, time consuming endeavors that carry a low probability of achieving a completely favorable outcome. Having an experienced intangible asset specialist – strategist in place can go a long way toward mitigating, if not alleviating such inevitabilities and persistent risks.
How does this translate…Stone v. Ritter in particular, (but also, In Re Caremark and In Re Disney) are three cases that draw attention to the importance, if not fiduciary responsibility, for companies to have effective intangible asset stewardship, oversight, and management practices (procedures, policies) in place.
Yes, these are Delaware cases, and yes, they are 2006 and 1996 decisions respectively, but they warrant management team attention because they bring much needed clarity to the necessity that management teams, c-suites, and certainly boards be kept apprised of what’s going on inside their company in the form of a (a.) good faith duty, and/or (b.) duty of loyalty. Both are intended to ensure a company has sufficient (intangible) asset monitoring and reporting (compliance) systems in place to keep decision makers and strategic planners apprised, i.e.,
with timely and accurate information (about intangibles) that is sufficient to allow them within their
respective scope of responsibility) to reach informed judgments concerning a company’s compliance
with law, and business performance and ultimately, intangible assets.
The business rationale for engaging intangible assets is much deeper than Stone v. Ritter alone…Respectfully, a significant, but unknown number of management teams, c-suites, and boards have yet to realize they have an obligation to seek and otherwise be provided with on-going status reports regarding their intangibles. So, perhaps a reminder that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, sustainability, and profitability originate in intangible assets will serve as a sufficient impetus – motivation to not merely take notice, but actually kick start this obligation within a company to act now, act effectively, and act aggressively.
Admittedly, intangible assets constitute a difficult theory of corporate law. It’s far from rising to the level of rocket science to recognize that trying to hold members of a company’s board (personally) responsible for poor management (stewardship, oversight) of a company’s intangible assets is a difficult theory in corporation law to prevail. It is, nevertheless, essential that these management team bodies assume a more ‘hands on’ position with respect to a company’s intangible assets.
Intangible asset strategists are not impediments to productivity or efficiencies….In Stone v. Ritter the court found that important and necessary information failed to reach ‘the board room’ because asset monitoring and communication of intangibles’ either fell short or were non-existent. So, a significant element of the Stone decision was that personal liability may attach, along with damages, if there’s a failure to, (a.) implement an effective information dissemination system, coupled with (b.) a regular system of asset monitoring to ensure boards have correct and sufficient information to make informed decisions.
It’s quite likely some company decision makers will regard the contributions of an intangible asset specialist-strategist being unnecessary or possibly even an impediment or hindrance to the seemingly go fast, go hard, go global objectives of many companies.
On the other hand, management teams and boards who maintain an attitude of being dismissive or not attaching a higher priority to this managerial responsibility are doing so at their financial and competitive advantage peril. That’s because there remains this pesky, but irreversible global reality that 80+% of most company’s value and sources of revenue are directly related to intangible assets.
So, when the responsibility is framed in this factual economic context, management teams are remiss, at minimum, if they elect to seek the expertise and skill sets…
- to consistently identify, unravel, develop, utilize, bundle, and effectively and efficiently extract as much value as possible from its intangibles, and
- simultaneously safeguard and monitor those assets’ value, materiality, and risk.
So, instead of assuming satisfaction with past practice, or worse, assuming all things intangible are either legal or accounting decisions, not strategic business decisions, management teams and boards are obliged to critically and objectively ask themselves, ‘has the time come’?
Each blog post is researched and written by me with the genuine intent it serves as a useful and respectful medium to elevate awareness and appreciation for intangible assets throughout the global business community. Most of my posts focus on issues related to identifying, unraveling, and sustaining control, use, ownership, and monitoring asset value, materiality, and risk. As such, my blog posts are not intended to be quick bites of unsubstantiated commentary or information piggy-backed to other sources.
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