Michael D. Moberly   July 13, 2010

I start with the premise that management teams and boards have a fiduciary responsibility to routinely and objectively ask, ‘is their company properly positioned, insofar as possessing the expertise and skill sets, to identify, unravel, develop, bundle, utilize, and extract as much value as possible from its intangibles, while simultaneously protecting and monitoring risks to those assets’ value, sustainability, and materiality’? 

As noted numerous times in this blog, the embodiment of managing and overseeing a company’s intangibles is the ability to sustain control, use, ownership, and monitor the value and materiality of a company’s (intangible) assets.  If the latter does not occur, or fails, little else matters, because asset value may quickly go to zero!

An intangible asset officer (specialist) then, can benefit a company by…

1. Providing on-going guidance to business units for managing intangibles, i.e., extracting value, delivering competitive advantages, and developing strategic plans for measuring asset performance, monitoring risks, value, and materiality.

2. Adding predictability to business transaction outcomes, projected returns, and exit strategies when intangibles are in play, by assessing their stability, defensibility, and value sustainability.

3. Conducting due diligence (assessments) to sustain the competitive advantages the assets bring and more fully exploit asset synergies and efficiencies.

4. Reducing the probability that project/deal momentum can be stifled by recognizing and mitigating circumstances that can (a.) ensnare and/or entangle the assets in costly and time consuming legal challenges, (b.) undermine/erode asset value and performance, and (c.) adversely affect asset reputation ‘risk points’, e.g., regulatory compliance, product/service quality, and/or security breaches, etc.

5. Improving the valuing, reporting, and accounting of intangibles and integrating same in (a.) asset development, (b.) company governance processes, and (c.) specialized asset management initiatives, i.e., knowledge management and balanced scorecard.

6. Building an ‘intangible asset’ company culture that’s effectively aligned - converged with a company’s mission and business objectives.

7. Designing comprehensive organizational resilience (continuity, contingency) plans that encompass mission essential intangible assets to provide quicker recovery following significant business disruptions or disasters.

8. Defining asset ’suitability’ factors, i.e., asset recognition, valuation separability, transferability, life cycle, and risks.

9. Monitoring intangible asset value chains, i.e., the inter-connectedness between the production, acquisition, and utilization of intangibles vis-a-vis their contributions to company value, revenue, and creating and sustaining competitive advantages.

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   May 28, 2010

Effective and consistent utilization and management of a company’s intangible assets is one of the most important and significant interventions a management team and board can undertake.  This is not merely over-dramatized conjecture, rather it’s a business reality and fiduciary responsibility that will deliver returns.

So, as has been conveyed in this blog on numerous occasions, there is another way to evaluate a companies performance other than what appears solely on balance sheets.

First of all, the ’intangible value’ of a company is, put quite simply, the difference between its market value (share price multiplied by the number of shares issued) and its net book value (recorded value of all tangible assets).  So, if a companies intangible assets were valued at 100 million dollars, even a 1% loss - erosion in (intangible) asset value would be significant, whereas (conversely) a 1% gain (in intangible asset value) would translate as substantial shareholder profits.

For most companies today, seldom does their (intangible asset) value fall below 50% of the market value.  Clearly, the more knowledge, know how, brand, reputation, competitive advantage (intangible asset) intensive a company is, the higher its intangible value which routinely ranges (again, for most companies) from 65% to as high as 90+%.

Still, within some companies, there remains a management-board ’blind spot’ regarding intangible assets.  In part, that blind spot can be attributed to management teams and boards clinging to the adage of ‘what gets measured,  gets managed’.  Thus, if a management team and board, and their internal operation support apparatus are unfamiliar with and/or reticent about engaging - managing (their) intangible assets, it exacerbates that blind spot to produce adverse implications for both the near and long term.

One example of an (adverse) implication is when a company does not practice effective management, stewardship, and oversight of its intangibles, i.e., have practices and policies in place to sustain control, use, ownership, and monitor asset value and materiality, such inaction can and does translate as losses for shareholders and overall erosion of company value.  

What’s more, when a company’s most valuble assets are overlooked, dismissed, or neglected, the contributions and competitive advantages those assets deliver frequently become diluted, meld away, or unwittingly relinquished to competitors who are likely to know how to use them and will do so without hesitation!

I welcome your comments m.moberly@kpstrat.com.

(This post was inspired by the work of Dr. Bruce Copley.)

Michael D. Moberly   May 3, 2010

When I discuss trade secrets and trade secrecy, I am not necessarily talking about the Coca-Cola’s of the world that have literally built an incalculably valuable and global brand around its trade secret formula for ‘Coke’.

Instead, I focus on the literally millions of small and mid-size companies (SME’s) that have built their brand (reputation, image, and goodwill, etc.) albeit on a smaller scale, by utilizing information they have developed internally.  Often times, that distinctive information provides SME’s with significant competitive and economic advantages that should be, but generally have yet to be formally recognized or treated as being either proprietary or a trade secret.

I am an advocate of openness and transparency under most circumstances.  But, in today’s extraordinarily competitive, predatorial, and winner-take-all global business environment, declaring and treating certain information as proprietary or a trade secret is simply prudent and necessary, particularly when that information serves as an underlier and driver ro elevating a company’s market (brand) value, securing sources of revenue, contributing to its sustainability, and laying foundations for future growth and wealth creation.

Still, there remain misunderstandings among management teams, boards, and employees about trade secrets and trade secrecy which I see being manifested in various ways and on different levels in companies.  For example, (a.) what are the costs of declaring certain information a trade secret, (b.) what are the legal requisites of trade secrecy and what resources must be committed and/or procedural changes executed, etc., to meet those requisites, (c.) how will shareholders and consumers react to having certain information being declared a trade secret, and (d.) are there downsides to declaring certain information a trade secret, etc.

These questions are legitimate and should be thoroughly vetted:

1. By anagement teams, boards, and include the internal contributors and partners that will ultimately have a direct role in execution.

2. In the context of a companies overall operational, brand building, and marketing strategy. 

Make no mistake, there is business prudency, if not fiduciary responsibility, in taking affirmative steps to keep certain information, especially that which delivers economic returns and competitive advantages not merely out of the public domain, but out of the hands of and probable use by competitors and other (economic, competitive advantage seeking) adversaries.

In many instances, the challenge to companies to declare certain information proprietary or a trade secret lies in a commitment to devote the necessary time to quite literally conduct an inventory of their internally developed information-based (intangible) assets.  In many instances, such an inventory reveals that those valuable assets have become embedded in operational processes, procedures, and practices that directly contribute to (underlie) efficiencies, competitive advantages, and customer/client goodwill, reputation, and image, etc., which, in turn, deliver value and revenue.  That information, along with the knowledge how to use that information competitively, should at minimum, be declared and treated as being proprietary!

I look forward to learning your thoughts and perspectives.

Michael D. Moberly   March 8, 2010

In Stone v. Ritter (but also, In Re Caremark and In Re Disney) Delaware courts drew attention to board/director oversight (management, stewardship) of compliance programs and company assets.

As we know, court decisions carry the potential to serve as, if not broad precedents, at least as a basis for framing future tactical - strategic (litgation) arguments in similar cases.  The courts’ opinion in Stone v. Ritter, in my view, carries such potential particularly when board/director liability is at issue relative to the effectiveness, and even perhaps questioning how actually engaged boards’ were, in the oversight (stewardship, management) of a company’s compliance programs.

An inferrence I drew from reading the court’s decision (Stone v. Ritter) and Rebecca Walker’s fine paper titled ’Board Oversight of a Compliance Program: The Implications of Stone v. Ritter’, is that Stone will come to be viewed (applied) not so much for its specific focus on board oversight of compliance programs per se, as it will for bringing operational clarity to the definition of ‘board oversight’.  That is, describing the key elements - what constitutes (basic requisites of) oversight (e.g., stewardship, management) of a company’s assets, and by extension, its intangible assets.

And, when 65+% of most company’s sources of revenue, value, and building blocks for future growth and sustainability lie in - are directly related to intangible assets, bringing operational clarity to this increasingly critical arena is a good thing!  Particularly, that is, when the elements, as outlined below, will surely not be lost on, or overlooked by plaintiff’s counsel. 

Integral to this of course is enterprise risk management (ERM) and its perspective of being ’proactively defensive’.  Therefore, company management/leadership teams, legal counsel, and boards/directors in general, would be well served by becoming familiar with these elements to position themselves to more effectively address - meet boards’ (fiduciary) duties, i.e.,

 ’…ensuring the board is kept apprised of - receives accurate information in a timely manner that’s    sufficient to allow it and senior management to reach informed judgments about the company’s business performance and compliance with the laws…’  by

1. Expanding the type of information that boards receive.

2. Scheduling meetings with members of the management team to inquire about:

    a. how the company’s (internal, external) reporting system is structured

   b. the company’s investigation policies relative to suspected incidences of (internal, external) misconduct

  c. employee perceptions of the company’s reporting - compliance - audit programs, and sufficiency of employee training in this arena.

3. Structuring the company’s reporting (compliance) programs to include sufficient resources and authority for effective execution.

4. Examining the manner in which the company actually conducts risk assessments, prioritizes its risks, and actually addresses (prevents, mitigates) those risks. 

Michael D. Moberly  March 4, 2010

Stone v. Ritter, In Re Caremark, and In Re Disney are three cases that emphasize the importance of 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 timely and relevant issues that warrant board, director, and management team attention.  Collectively, these cases go to the very heart of the increasing number of intangible-IP asset driven (knowledge-based) businesses. That is, today, 65+% of most company’s sources of revenue, value, and building blocks for future growth and sustainability lie in - are directly related to intangible assets.

Also, these cases, among other things, bring clarity and specificity to board’s-director’s being kept apprised of and/or knowing what’s going on inside their company.  That is, the extent and parameters in which boards/directors have a good faith duty, even perhaps duty of loyalty, to ensure (company) monitoring and reporting (compliance) systems are not merely in place (on paper), but they were specifically designed and now function to routinely and properly apprise senior management and boards:

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’) to ensure each of the above occurs, they may well be, (in light of the aforementioned cases - 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 (accept) a more ‘hands on’ view of their stewardship, oversight, and management responsibilities relative to their company’s assets, particularly, 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.

As noted numerous times in this blog; integral to - underlying board, director, and management team stewardship, oversight, and management (fiduciary) responsibilities is the ability to sustain (protect, preserve) control, use, ownership, and monitor the value and materiality of a company’s (intangible) assets.  If the latter does not occur, or fails, little else matters, because asset value may quick go to zero!

(Mr. Moberly adapted this blog post from the work of Rebecca Walker of Kaplan & Walker.)

Michael D. Moberly   January 15, 2010

In a 2008, UK-based study titled ‘The Hidden Marketplace’ it was reported, to no particular surprise, that there’s quite strong agreement among company management teams that intellectual property  and probably intangible assets as well, are (1.) valuable assets, that, (2.) warrant protection.  

A reality though, as reported in the study, again, no surprise here, is that those dual perspectives of value and protection, are more reflective of managerial aspirations than reality.  That is, management teams seldom translate (execute) their espoused perspectives about IP into concrete actions such as (a.) registering their IP, (b.) engaging in employee IP awareness training, and/or (c.) pursuing - taking action against (internal, external) IP infringers.

Admittedly, this (study) research project focused predominatly on the demand side - consumptive aspects of the larger counterfeit market.  Specifically, the research sought to get a better picture of what is happening in those so-called ’hidden marketplaces’, i.e., places of employment wherein employees routinely purchase counterfeit and/or pirated goods.  A very worthy objective for the principle investigators of this study (as an outgrowth of the project as whole) was to develop relevant tools and assistance for employers and enforcement agencies to help address the (IP theft-infringement) problem from the inside.

This study also examined three (other) issues relevant to the principles of the Business IP and Intangible Asset blog, i.e.,

1. employee attitudes regarding the value of IP

2.  a company’s (management team) approach to protecting its own IP, and

3. what levels of awareness exist among employers - management teams about the problems associated with IP theft in their workplace. 

These issues, in my view, would be better framed in a normative context, i.e., (a.) what should management team attitudes be about protecting their company’s IP, and (b.) what is the necessary (appropriate) level of awareness management teams should possess regarding IP protection to effectively benefit their company?

The answer to these questions lie in management team recognition that it’s quite likely, 65+% of their company’s value, sources of revenue, and building blocks for future wealth creation and sustainability are directly related to (their) intangible assets and IP.  Underpinning that recognition is management teams’ ability and committment for sustaining (managing) control, use, ownership, and monitoring the value and materiality of its IP and intangible assets.  Absent those requisites, its unlikely progress will occur!

Michael D. Moberly     January 13, 2010

It used to take years of dedicated bad management to destroy a company, now it can be done almost overnight, and it’s not just due to the range of hazards, e.g., fraud, financial calamities, terrorism, and/or failures in supply chains, etc., that can threaten a company, it is the speed which such risks can strike and how they can rapidly escalate and cascade throughout an enterprise internally and externally! (Adapted by Michael D. Moberly from remarks of Sir John Bond, Chairman of UK based HSBC)

Risks to business continuity and intangible assets such as intellectual property, brand, reputation, image, goodwill, supply chains, and competitive advantages are rising and asymmetric.  In many respects, they represent outgrowths and/or consequences of a hyper-competitive, predatorial, winner-take-all, go fast, go hard, go global business transaction environment functioning in knowledge-based economies. 

At least one favorable consequence though, in my view, is more attention is being drawn (normatively speaking) to the precise role and (fiduciary) responsibilities of corporate boards relative to including (addressing) business enterprise (business) risk as routine action items on their agendas, sometimes through ‘risk committees’.

An initial step toward achieving this essential addition, again, in my view, lies in ensuring boards receive professional, objective, and relevant briefings and awareness training absent any ‘agenda’ other than providing strategic and/or tactical insight, perspective, and guidance to benefit the company.

In 2005, Lloyds and The Economist Intelligence Unit collaborated to create a briefing paper (study) titled ‘Taking Risk On Board: How Business Leaders View Risk’.  The report (a.) explored the extent to which risk is now a board-level responsibility, (b.) described what boards see as their risk-related priorities, and (c.) identified what they do and don’t do to implement effective risk management strategies in their organizations.

The Lloyds - The Economist Intelligence Unit report concluded that yes, most boards are taking risk more seriously.  However, in most instances, a board’s rationale for doing so had been prompted more by the imposition of governance and regulatory mandates and not necessarily by a genuine recognition that their company’s business strategy would benefit from fully integrating (top down) risk management initiatives directly and consistently into board decision-making.

Somewhat more disconcerting however, was the finding that board’s frequently characterized the act of addressing risk in their boardrooms as constituting (a.) constraints, (b.) diversion of resources, and/or (c.) obstacles (impediments) to necessary - normal business risk-taking.

(Perspective and insight for this post was gleaned from - adapted by Mr. Moberly from a 2005 report produced by Lloyds and The Economist Intelligent Unit titled ‘Taking Risk On Board’.)

Michael D. Moberly    January 12, 2010      (Part Two of Two Part Post)

There should not be any particular mystery, managerial, or otherwise, about best practices for utilizing-exploiting a company’s intangible assets!  Yes, there is some specialization that is helpful insofar as identifying, unraveling, positioning, leveraging, and maximizing the value of intangibles.  In most instances, that expertise can be readily achieved without the encumbrances of conventional ’mba’ speak that tends to (a.) favor tangible (physical) assets, and, (b.) be out-of-step with business realities of the knowledge-based (global) economy in which 65+% of most company’s sources of value, drivers of revenue, and building blocks for future wealth creation and sustainability lie in - are directly related to intangible assets and intellectual property (IP).

Some key ’managerial mysteries’ about intangible assets that must be overcome are:

1. inhibitions (reluctance) to advocate and/or develop strategies to measure - count them in relatively absolute terms.

2. the assets’ lack of physicality, i.e., one knows they exist and recognizes their contributory value and the economic-competitive advantages they deliver, e.g., brand, reputation, image, goodwill, intellectual capital, etc., but one can’t necessarily touch or see those assets in the same manner as physical (tangible) assets, e.g., plants, equipment, inventory, capital, etc.

To further help demystify intangible assets, its important to recognize they exist in three broad categories:

1. Intangible goods and products whose value can be established in the marketplace, e.g., licenses, franchises, patents, trade secrets, and brand value, etc. 

2. Intangible competencies which include distinctive and perhaps proprietary processes and routines, e.g., know how and intellectual capital held and practiced by employees and capable of being created and deployed to the right people at the right time in ways that deliver competitive advantages, value, and bottom-line profits.

3. Latent capabilities which include such things as reputation, image, leadership, innovativeness, and the caliber (capability, capacity) of the workforce to create, identify, and respond to market opportunities to accommodate todays hypercompetitive, aggressive, predatorial, and winner-take-all (global) business transaction environment.

Becoming a more forward looking - forward thinking company through more effective stewardship, oversight, management, and reporting of intangible assets carries some degree of risk, most of which can be mitigated while accruing significant business benefits.

(Perspective on this post was gleaned by Mr. Moberly from long term research conducted by faculty of the Cass Business School, City of London, UK)

Michael D. Moberly   January 8, 2010

It’s surely a fiduciary responsibility of the new decade.  But, there is no (proverbial) silver bullet, nor a one size fits all approach (template) for companies and management teams to commence unlocking and putting to use the value of their intangible assets.  A prudent starting point though is to accept the economic fact that (65+%) of the origins, sources, and contributions to most company’s value, revenue, and future wealth creation have changed from tangible (physical) assets to intangible assets.  In the global knowledge-based economies, that’s a business reality thats deeply embedded and irreversible. 

Today, a necessary requisite to company sustainability and success lies in management team’s ability and determination to not merely recognize, but mobilize those frequently and long overlooked resources which are of course, intangible assets.  Unfortunately, experience notes, intangibles are routinely (a.) taken for granted, (b.) inadvertently allowed to become stagnant or concealed, and (c.) in many instances, dismissed, neglected, and overlooked as potential and viable sources of value and revenue to companies.

However, as Weston Anson consistently states, as does the Cass Business School (UK) consistently emphasize in their research, the value of intangible assets depends upon - is related to how its used, in other words, the context.  This means, instead, each company management team must:

1. devote time to (finding) identifying and unraveling individual assets and/or clusters and chains of intangible assets…

2. assess each assets’ status, stability, fragility, and contributory value to the company relative to revenue, forward looking ‘building blocks’ for additional/future wealth creation, competitive advantage, and (company) sustainability.

In the near term, as is so often the case, progress in the ‘intangible asset arena’ is largely dependant on the forward thinking proclivity of management teams to become learned advocates (of intangibles) and recognize it as an effective tool-strategy to stimulate change, innovation, and improvements in their company’s by engaging and utilizing intangible assets.  Doing so today, is neither a ‘crap shoot’ nor overly fraught with risk, rather its merely being a prudent and intelligent manager who acknowledges and embraces the fiduciary responsibilities that underpin business success in this new decade!

Michael D. Moberly    January 6, 2010

Generally, I tend to frame business issues and transactions through a broad, but nevertheless, single lens; the lense of risk.  This includes mulling over strategies to mitigate and/or manage those risks, particularly, in my case, risks related to sustaining control, use, ownership, and monitoring value and materiality of a company’s intangible assets and intellectual property (IP). 

Though, in many enterprise risk management equations today, there remain boards that do not share or embrace those perspectives, in part because they bring their own views and experiences about risk to the boardroom which, in my judgment, may be out-of-step with the expanding spectrum of asymetric risks that routinely confront businesses today.  When this occurs in boardrooms, it makes it difficult, absent effective-high level training, for boards to…

1. find a common context to frame and build a strategic concensus for understanding, approaching, and prioritizing risk on behalf of the company

2. design an objective and quantitative framework to benchmark against, i.e., one that does not rely on situation specific and/or subjective anecdotes.

Also, another possible consequence is that ‘risk’ will not become a necessary and routine (action-discussion) item on board agendas.  In fact, a 2008 Deloitte report titled ‘The Risk Intelligent Board’ suggested that a significant percentage of board members conceive-address company risk…

1. solely at an intuitive level

2. by relying (sometimes exclusively) on perspectives expressed by internal risk specialists in combination with a boards’ own risk management committee, and/or

3.  in a narrow manner by focusing on protecting - mitigating risks that can adversely affect company value through existing and presumably, tangible (physical) assets.

While the Deloitte report courteously suggests there is nothing especially wrong with the above perspectives, they do represent the proverbial ‘half a loaf’ approach.  Done correctly, the stewardship, oversight, and management of a company’s risks, at the board level, should include addressing risks in a manner that is aligned with achieving long term strategies. 

Too, by regularly inquiring about - addressing risk in the boardroom, a persistent problem will be confronted and likely diminish, e.g., the tendency for risk management activities to take place in subjective, anecdotal, and isolated silos.

Respectfully, it’s difficult to appreciate why some boards are not attuned to seeking the necessary training to become Deloitte’s version of ’risk intelligent boards’, especially in light of the economic fact that 65+% of most company’s value, sources of revenue, and foundations for future wealth creation and sustainability lie in - directly evolve from intangible (not physical-tangible) assets!