Michael D. Moberly   July 12, 2010

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

Stone v. Ritter, In Re Caremark, and In Re Disney however, are three cases that emphasize the importance and provide practical context to board/director (fiduciary responsibilities) for the oversight, management, and stewardship of company assets, with specific implications to intangible assets and intellectual property. 

Yes, these are Delaware cases, and yes, they are 2006 and 1996 decisions respectively, but they present relevant issues that warrant board, director, and management team attention today.  Collectively, these cases are underliers to the economic fact that 65+% of most company’s sources of revenue, value, and building blocks for future growth and sustainability today lie in intangible assets.

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

a. with timely and accurate information, that is sufficient to allow them (within their respective scope) to

b. reach informed judgements concerning a company’s compliance with law, and business performance.

In other words, today, absent specific efforts (by boards, directors, etc.) to ensure each of the above occurs, they may well be (in light of these New Jersey court decisions) failing to satisfy their duty to be reasonably informed about the company and therefore, be held personally liable for problems that arise.

While attempting to hold directors (personally) liable for the misconduct of (company) employees, may be one of the most difficult theories in corporation law which a plaintiff might hope to prevail, it is nevertheless, essential, in today’s extraordinarily competitive, aggressive, predatorial, and ‘winner-take-all’ (global) business and transaction environment, that boards, directors, and management teams assume a more ‘hands on’ position with respect to the stewardship, oversight, and management of their company’s intangible assets.

Why?, because in cases such as Stone v. Ritter, In re Caremark, and In re Disney, important and necessary information failed to reach the board because of ineffective internal (company) controls and regular monitoring of those controls.  So, what’s the significance and (potential) applicability of these cases to company boards, directors, and management/leadership teams in general?  

Most likely, its that each may/could be held (personally) liable for damages resulting from legal violations committed by employees, if there’s a failure to, (a.) implement reporting or information systems or controls, and/or (b.) regularly monitor such systems.

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

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

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

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

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

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

Michael D. Moberly  December 29, 2009

In most instances today, when owners/founders of SME’s (small, medium enterprises) sell and/or transfer their business, the intangible assets they have developed and/or acquired are literally embedded in - integral to their company’s base of value, sources of revenue, foundations for future wealth, and sustainability.  But, anecdotally speaking, those assets routinely go unrecognized or poorly addressed - factored in exit and/or transfer transactions.

For parties to buy, sell, transfer and/or M&A transactions, one of the initial, and ultimately perhaps, one of the most important issues to be addressed relative to laying foundations for ensuring projected-anticipated profitability (success) of a transaction, is executing an effective transition-merger of the intangibles to the new owner relative to their integration, useability, transferability, and contributory (added) value, etc.  The objective of course, is that the intangibles’ post transaction performance and contributions will exceed, or at minimum, be equal to the performance-value their previous owner seemingly gained.  If not, why buy - invest in them?

For those who may be inclined to characterize this consideration as being insignificant to a transaction’s strategic success, are respectfully advised to reflect upon the (global) economic fact - business reality that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation lie in - are directly related to intangible assets.  So, in a vast majority of transactions, intangible assets are in play - part of the deal.   Therefore, they’re integral to transaction equations!

So, what should (can) buyers do?  First, and foremost, ensure their due diligence process includes an intangible asset specialist who possesses the skills sets and experience to actually…

1. identify clusters-pockets-chains of of intangible assets, unravel their origins, and determine (track) their respective (current) contributory value to the sellers’ company.

2. assess the assets’ status and transferrability (useability), i.e., determine if the assets’ control, use, ownership, contributory value, and materiality can be sustained and/or enhanced, post transfer.

While the (largely subjective) dollar value assigned to intangibles in transactions is obviously relevant and should be factored, I find it consistently less (strategically) meaningful-relevant if the above points are overlooked, dismissed, or neglected.   

Michael D. Moberly   December 1, 2009

Lest we forget, its an economic fact - business reality that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation today lie in - are directly linked to intangible assets.  With such significant value being embedded in a company’s intangible assets its imperative that management teams have, in place, effective strategies to (a.) consistently identify, utilize and enhance those assets, and (b.) safeguard those assets, i.e., sustain their control, use, ownership, and monitor their value and materiality. 

Here are some key best practices that apply to every company, regardless of size, worth, or industry sector:

1. Bring personal, managerial, operational, and fiscal clarity to the term ’intangible assets’.

2.  Identify (determine) the types and categories (range) of intangible asset that exist in your company, e.g., go to http://kpstrat.com and ‘click on’ brochure in menu and scroll to ‘Examples of Intangible Assets’.

3. Unravel the developmental origins of those intangibles and create a company specific ’tool’ to assess their status, i.e., their fragility, stability, durability, sustainability, contributory value, and ownership.  It’s important to note that the development/production of intangibles is routinely tied to people (employees). 

4. Determine how (or if) those assets are consistently being captured and utilized (or, under-utilized, not utilized) within the company, e.g., determine specifically how they contribute to - linked to enhancing  particular operations, processes, an/or procedures by delivering efficiencies and/or competitive advantages, enhancing customer/client relations, influencing additional revenue sources, etc.

5. Determine how (if) the development and use of intangibles within your company are (effectively) aligned and integrated with the company’s core (strategic) mission.

6. Regularly communicate your company’s ‘intangible asset strategy’ to employees and institute mechanisms to ingratiate that strategy as a ‘company culture’.

Michael D. Moberly   November 25, 2009

Remember in 1998 and 1999 when every IT system-computer worldwide was facing a presumptive technological Armageddon.  Individual users and entire companies were scrambling to become ‘y2k’ compliant. 

At the time, a widely known, but, somewhat embarrassing aspect of meeting the deadline, i.e., achieving y2k compliance, was finding - locating individuals with the requisite legacy skills - historical expertise of a company’s original IT system configuration necessary to bridge and/or align the aging (non-compliant) systems with the y2k mandates.  

Interestingly, the y2k phenomena came at a time when many companies were experiencing two other phenomena:

1. engaging their second generation of computing, but, computing-IT ‘generations’ in the 90’s were calculated in years, not months or quarters, as they routinely are today.  

2. the initial peak of the IT off-shoring, that is, for a variety of reasons, most of which were financial, companies were shedding their internal (proprietary) IT expertise to an off-shore model.  

There’s little argument today that intellectual capital did then, and still does, represent one of a company’s most valuable (intangible) assets.  So, as many companies learned during the y2k period, intellectual capital adds-sustains value for a company and, if recognized and effectively exploited, can permit companies to be more efficient and avoid reinventing (or, finding) the proverbial wheel each time a new venture is undertaken. 

Ultimately, whether a company’s intellectual capital goes out the front door through off-shoring or downsizing or out the back door through theft, misappropriation, or infringement, several questions should be on management team and board agendas.  One of which is, will companies again find themselves in a predicament not unlike the y2k period, in which their internally developed and proprietary intellectual capital (know how) becomes hollow, i.e., lacks the necessary depth, organizational framework, and infrastructure to quickly and effectively respond to on-the-horizon challenges, risks, and threats.

Michael D. Moberly   November 9, 2009

I have yet to find a company that does not want to survive this recession.  While that statement is self-evident and may sound literally obsurd to most, similarly, I’ve come across countless companies and management teams who have yet to fully realize that perhaps the key, to sustaining, even strengthening their business in this recession, is to understand their cheese has been moved. 

For those unfamiliar with this notion, a very brief, but reflective book by Spencer Johnson titled ‘Who Moved My Cheese’ may be worthy of the 30 minutes it requires to read.  

The ’cheese that’s been moved’ in this instance, are company’s tangible assets!  That is, for a vast majority of company’s (their) tangible (physical) assets, i.e., property, buildings, equipment, inventory, etc., have been permanantly moved.  Tangible assets no longer, as they did in previous decades, represent the dominant drivers or sources of most company’s value, revenue, and/or foundations (building blocks) for future growth, wealth creation, and sustainability. 

Instead, for most company’s, their primary sources of value and revenue have irreversibly transitioned, in the increasingly ‘knowledge-based’ economy, to intangible assets.  Intangible assets include such (intangible) things as brand, reputation, image, intellectual property, employee intellectual-human capital, and internal/external relationships, etc.  (For a comprehensive list of intangible assets see http://kpstrat.com and ‘click on’ brochure and scroll to ‘what are intangible assets’.) 

If you elect to read Johnson’s book, one suggestion to make the concept of ’who moved my cheese’ more palatable and relevant to business decision makers and management teams, is to substitute the words ‘tangible’ or ‘intangible assets’ every time the word ‘cheese’ appears in the (book’s) narrative.  This will help the reader identify with intangible assets and the importance of recognizing their (individual, collective) role and contribution to company value, revenue, and sustainability.

To bring further clarity to this point, I recently I attended a gathering of entrepreneurs. The keynote speaker was a well known and highly successful area restauranteer.  For those listening carefully to the 30 minute presentation, at least 20 minutes included the speakers’ obviously heart felt and experienced sense of the internal culture that underpins the sustained success of this 35+ restaurant enterprise.  Without exception, each of the factors the speaker addressed (including the internal culture) as contributing to building and maintaining this company’s success (even during the current recession, and the ever broadening competitive dine out market space) were, in fact, intangible assets!

Interestingly however, the words ‘intangible assets’ were never uttered during the presentation, nor in the Q&A that followed, to contexualize this restauranteer’s success.  Clearly, another instance of c-suites’ genuinely needing to know how they and their company should best react ’when their cheese is moved’.  That is, its an economic fact - business reality that 65+% of most company’s value, sources of revenue, and foundations for future wealth creation today lie in - are directly related to their intangible assets, not their tangible assets.  To be sure, that is the case for restaurants.

For those dedicated to elevating awareness, alertness, and accountability for intangible assets throughout the business and financial community, the process often starts with management teams literally acknowledging (verbalizing their) success and profitability is routinely attributed to, in large measure, by the effective and sustained utilization of intangible assets, i.e., development, execution, delivery, quality assurance, etc. 

Michael D. Moberly   November 3, 2009

Of the many take-aways I consistently receive from Smart Cities’ Radio program hosted by Carol Coletta (CEO’s For Cities) are the not so subtle references to city’s ’missed opportunities’ which, in many instances, represent intangible assets, i.e., overlooked, neglected opportunities (intangibles) embedded in many city’s rich historical, cultural, architectural, and/or epicurean past. 

Many city’s intangible assets, which Coletta routinely eludes to in her weekly radio program, have the potential for being re-conceived, re-captured, re-invested, and ultimately re-branded to add, produce, and deliver value to a city or even a particular neighborhood.  Intangible assets can be the impetus for producing genuine value not only to city’s, but company’s as well.  In most instances, this will only occur when management teams - decision makers genuinely understand, recognize, and set viable strategies to effectively and efficiently utilize their intangible assets. This entails, among other things, identifying them, unraveling them, investing in them, positioning them, leveraging them, managing them, and putting best practices in place to sustain their control, use, and ownership, along with monitoring their value and materiality.

All that said, there are commonalities and analogies to be drawn to city’s, investors, university R&D, health care institutions, and start-up/early stage companies coming together, usually under a larger ‘governance, investment, and motivational umbrella’ to form bio-tech communities, or so-called cooridors, which typically link government, university, and private sector institutions and facilities in variously collaborative arrangements. 

Commencing those well intended endeavors though should include strategies to address - focus on the foundational underpinnings necessary for (project) sustainability.  In today’s extraordinarily competitive, predatorial, global, and winner-take-all business transaction environments, ’sustainability’ does not lie solely in patents and other intellectual property centric practices and strategies that tend to frame the commercialability of project R&D in very vertical contexts that may not always attend to these types of ‘community’ projects’ long term sustainability.  That is, it is in a city’s interest, that projects of this nature build - deliver value not solely for the investors, which they are rightfully due, but also, deliver real, long term strategic value in the form of multipliers and spillovers that spread throughout a community in the form of tangible, but most importantly, intangible assets.  

Michael D. Moberly    September 15, 2009

Strategic planning is about articulating (communicating) a clear, practical, and collaborative vision about where a company ‘wants to be’ at some point in the future.  The actual strategic plan describes specific ’action steps’ necessary to achieve that vision, e.g., an assessment of the resources (human, capital, material, etc.) necessary to execute the plan.

It’s an economic fact - business reality today however, that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future growth, expansion, and wealth creation lie in - are directly related to intangible assets.  Thus, strategic planners would be remiss if they overlooked the contributions intangible assets make to realizing the success and effectiveness of a company’s - organizations’ future.  Not factoring the contributions of intangibles into a strategic plan would leave  significant gaps in the strategic planning and would likely hinder, if not totally derail the plan’s projected success and effectiveness.

The importance of factoring intangible assets in strategic planning has been elevated in part because of the emphasis placed on intangibles in Sarbanes-Oxley and FASB (nationally) and their international equivilents relative to accounting and reporting (the assets’) value and materiality changes.

An increasingly relevant prelude to strategic planning is conducting an intangible asset assessment, the purpose of which is to (1.) identify, unravel, value, and assess the stability, sustainability, and defensibility of a company’s intangibles, (2.) bring strategic (business) clarity to those intangibles insofar as their creation, utilization, positioning, leveraging, and ways to extract value, (3.) ensure control, use, ownership and value of the intangibles can be sustained relative to the the strategic plans’ term, and (4.) examine the assets’ relevance/contribution to other (company) transactions, i.e., joint ventures, strategic alliances, mergers and acquisitions, etc.

Intangible asset assessments are necessary elements to strategic planning because, (1.) unlike patents, trademarks, or copyrights, there is no certificate issued by the government that says, these are your intangible assets, competitive advantages, intellectual capital, brand, reputation, image, and goodwill, etc., and (2.) intangibles are often embedded in a company’s routine operations, processes, and functions.  Identifying and assessing intangibles thus falls exclusively to management teams and specialists in intangible asset management.

So, what are intangible assets?, they’re blends or combinations of procedures, relationships, or culture, etc., embedded in a company’s distinctive and often times proprietary processes or practices that (a.)create efficiencies, (b.) facilitate/enhance internal - external relationships, (c.) provide special edges/advantages in the market place, and/or (d.) can be leveraged to differentiate a company from its competitors, and thus create value.

Michael D. Moberly   September 14, 2009

The question whether franchise operations are driven (more) by conventional intellectual property (IP) or by other intangible assets probably represents, for some anyway, a classic case of ‘a difference without a distinction’.  The franchising business model is characterized as a service industry driven by licensing of patents, trademarks, service marks, copyrights, and trade secrets. 

Its fair then to generalize franchisors’ as probably devoting more time addressing near term issues such as (a.) IP licensing, (b.) recruiting franchisees, (c.) collecting royalties and fees, and less time to (d.) identifying and exploiting intangible assets developed/produced by franchisees.

The broad question presented here is, could additional revenue, value, sustainability, and foundations for growth and expansion be realized if franchisors had objective processes in place to consistently identify, (collect) measure, monitor, manage, and exploit the additional intangible assets produced as a franchisee (and/or franchise operation) matures?

Intellectual property largely consists of precedent driven concepts, processes, and certifications which most franchisor management teams possess familiarity, or which they can readily turn to legal counsel to address.  Intangible assets, on the other hand, lack comparable precedents or processes.  In fact, intangible assets lack physicality which makes measuring their performance still somewhat elusive.  Too, there’s seldom an ‘intangible asset specialist’ readily available for franchisors to turn for counsel. 

The view put forth here is that franchisors and their franchise operations are less driven today by the intellectual property licensed to franchisees, and more driven by the intangible assets that franchisees develop.  Franchise intangible assets are defined as unique blends (collections, combinations) of activities, and/or relationships that franchisees’ develop and execute to acquire sales, gain market share, and competitive advantages to differentiate themselves in the market place.  

Michael D. Moberly    September 10, 2009

A critical, but routinely dismissed, overlooked, and undervalued aspect of ‘doing business’ today is the economic fact - business reality that intangible assets literally underlie - are embedded in most business operations and transactions.  But, intangibles (and their equally prominent cousins, i.e., intellectual capital, intellectual property, competitive advantages, brand, reputation, image, goodwill, etc.) are seldom consistent fixtures (guages) on the dashboards of management teams and business strategists. 

Evidence-based research unequivically finds that executed familiarity and insight regarding the identification and utilization of a company’s intangible assets will add numerous multipliers, i.e., value, credibility, and efficiencies, etc., by, among other things, complimenting functions and responsibilities throughout c-suites and boardrooms, especially CKO’s, CIO’s, CFO’s risk managers, IP counsel, and regulatory compliance processes (ala the growing universal application of Sarbanes-Oxley and FASB).

This added value, efficiencies, creditiblity and other multipliers produced will manifest themselves in other ways as well, one of which is greater management team emphasis on recognizing the absolute necessity of aligning (a company’s) intangible assets with the core business and its strategic planning.  But, there remain skeptics, so why is it that…

1.  One can probably pinpoint the precise time of day a desk stapler went missing or an email was sent, but remain absolutely clueless about the status, stability, defensibility, and location of 65+% of a  company’s value, sources of revenue, sustainability, and platforms for growth and expansion, i.e., intangible assets…

2. One is likely to entrust their company’s most valuable intangible assets, proprietary business practices, and even trade secrets to employees or individuals in which the primary communication is saying hi, goodbye, and thanks to at the office or photocopy store…

3. As a member of a company’s management team, initially learning the real-market value of misappropriated, compromised (infringed) intangible assets and intellectual property occurs when legal counsel is asked what their fees will be to try to get them back and recover their value and the competitive advantages they produced…

4. One assumes their company’s innovation is adequately protected merely because a patent has been issued or computer/IT security, non-disclosure and non-compete (employment) agreements are in place. Isn’t it time management teams became familiar with global data mining, business intelligence, and information brokering operations?  Or, just go to www.globalfleecemarket.com and see the company’s products, ideas, and competitive advantages in counterfeit-pirated form…

Michael D. Moberly   September 9, 2009 

In today’s globally competitive and nanosecond business (transaction) environment, its important for decision makers to frame intellectual capital management within their company (and intangible assets and intellectual property) as collaborative exercises.  Above all, intellectual capital management should involve perspectives from functional and business unit leaders and senior (c-suite) officers that’s not packaged solely through a legal context or technology management lens.  

Intellectual capital management strategies carry long term implications and consequences, some of which are irreversible.  The probability that outcomes (to IC management) will be more effective and profitable occurs when it is conceived and framed, from the outset, as strategic business decisions in which legal and technology management are integral, but the ultimate (business) decision, may not defer to either.

Without being dismissive of company management teams’ other responsibilities, achieving a level of familiarity with intellectual capital (along with other intangible assets) sufficient to make sound, confident, and strategic (business) decisions, entails preparatory steps such as holding discussions, training, and/or seminars, etc., to respectfully elevate their awareness and familiarity.  

Experience suggests that management teams find the following to be particularly relevant and beneficial insofar as acquiring fundamental insights to aid them in making decisions about managing (their company’s) intellectual capital:

1. Distinguishing the various forms/contexts in which intellectual capital exists. 

2. Assessing intellectual capital performance (as an asset), i.e., its status, stability, fragility, defensibility, sustainability, and contributions to value, revenue, competitive advantage, market share, reputation, etc. 

3. Identifying where and how intellectual capital assets originate and evolve within the company.

4.  Designing and executing (company specific) strategies to effectively:

      a. utilize, bundle, leverage, and/or convert intellectual capital (assets) to value, revenue, and foundations for future  wealth, growth, and expansion.

    b. sustain control, use, ownership, and monitor the value of intellectual capital (assets) throughout their respective life, value, and functional cycles, as needed.