Archive for 'Board oversight'

Intangible Assets, What Companies, Management Teams Are Obliged To Know Now!

February 11th, 2017. Published under Board oversight, Business Transactions, Fiduciary Responsibility, Intangible asset strategy. No Comments.

Michael D. Moberly February 11, 2017 A business blog where attention span really matters!

Integral to business operability, and certainly as a prelude to undertaking – engaging in any new initiative or transaction wherein IA’s are ‘in play’, i.e., bought, sold, acquired, or traded, etc., leadership and management teams are obliged to know, with sufficient specificity, how to distinguish, measure, and monitor…
• what IA’s are, their rightful owner-originator, and which IA’s are in play.
• IA’s contributory role to value, revenue, competitive advantages, and asset commercialization opportunities.
• IA value and performance throughout their respective life, value, materiality, and functionality cycles.
• and, identify and mitigate IA risks in both pre, and post (transaction) contexts, particularly risks which, if materialized, would undermine – erode asset value, a project’s momentum, and most, if not all, competitive advantages.

Today, with ‘keystroke capability’, businesses can rapidly engage in global competition and enter new markets, each variously enabled by at will access to ‘always on’ worldwide (intermodal) supply and distribution channels ala air freight carriers, containerized ocean-rail shipping, and e-commerce.

These comparatively new, but, very integral enablers – components to global trade are consistently tweaking their ‘logistics’ through inputs of intellectual, relationship, and structural capital, ala IA’s, to create more efficiency, speed, capacity, and on-time delivery. Such capabilities permit mature, new, and emerging businesses alike, regardless of size, sector, location, product, or volume, to distribute their products and services whenever and wherever markets exist, or are emerging, and do so rapidly and absent the burdensome expense and time to independently configure conventional supply-distribution channels.

The at will availability-access to these now ‘infrastructured’ intermodal services represent factors that further influence business leadership to look – think more forwardly, e.g., consider where, when, how, and which type-category of IA (ala, collaborations of intellectual, structural, and relationship capital, etc.) should be introduced to produce the most effective, competitive, and profitable outcomes.

A parallel aspect to these ‘infrastructered’ intermodal assets, is recognizing the necessity to consistently invest in developing, acquiring, and integrating nuanced-specific IA’s to accommodate continuous improvement, create efficiencies, sustain-build competitive advantages, increase-stabilize company-IA value, and utilized-exploited to develop new-additional sources of revenue.

An especially important capability, of course, is being able to determine their (IA’s) impact on – relationship to company-shareholder value. This value, in my judgement, and that of others, should no longer be limited by either the content or how conventional balance sheets and financial statements are framed. Instead, company (business) value should convey whether-or-not, i.e., a measure of how well, a company develops, safeguards, uses, and exploits IA’s under its control, e.g., as coordinated spring boards, building blocks, and/or paths to elevating (asset) value, revenue, competitive advantages, and wealth creation potential.

It is indeed an understatement, to assume business operability today is enmeshed in anything less than a ‘sea change’ as its operational interface with IA’s rise routinely. The IA phenomenon is, what I refer to, euphemistically, as an ‘inevitable unknown’. By that, I mean, there were numerous indicators appearing within and throughout companies and businesses, often, in advance of the publication of respected studies which surfaced IA’s actual (contributory) role and value, had more attention been paid.

So, another upshot to this total economic shift to IA’s is business leadership directing – allocating proportionately fewer resources to company’s physical-tangible assets and more resources to IA’s in play, i.e., their development, monetization, and exploitation of (their) competitive-creative capital.

For all the forward-looking insights that surfaced through the Brookings Institution’s ‘Intangibles Project’ and complimentary research conducted in the EU, there is no indication these projects were undertaken solely or even primarily, to influence revisions to conventional (IA) reporting, accounting, taxing, or the standards, statues, and regulations the relevant professions are obliged to uphold. But, to be sure, notions to that affect have occurred.

Reporting Intangible Assets

January 21st, 2016. Published under Board oversight, Communicating Risk, Fiduciary Responsibility. No Comments.

Michael D. Moberly   January 21, 2016 ‘A business blog where attention span really matters’!

When-where ever there is institutionalized indifference about the treatment of IA’s (intangible assets) at the hands of organization-company boards, management teams, legal, security, marketing, and accounting, etc., there will be a comparable stifling of curiosity for pursuing the actual contributory role and value of IA’s apart from the growing fiduciary responsibility to engage IA’s beyond the singular catchall of goodwill as described in Stone v. Ritter, 911 A.2d 362 (Del. Supr. 2006).

Yes, it remains quite true, IA’s are seldom, if ever, reported on company balance sheets or financial statements, a reality which I suspect will change in the not too distant future. In large part, the change away from (IA) indifference and dismissiveness to acknowledgment and engagement will be influenced (also) by necessity, e.g.,…

  • to provide more complete portraits of organization value, competitiveness, sustainability, and performance.
  • otherwise, organizations will be left unnecessarily holding far too many unknowns, uncertainties, and risks.

Not being trained in organizational psychology per se, it would be a reach to state with absolute certainty why, how, or the depth of (organization) ‘IA deniers’. As an intangible asset strategist and risk specialist, experience rather clearly suggests however, that the rigid inflexibility I encounter with ‘IA deniers’ will be challenged as IA intensive – dependent organizations become the norm, coupled with the managerial requisite for…

  • making consistently effective decisions whenever, wherever, and however IA’s are in play which compliments organizations interest in attracting go fast, go hard, go global management teams.

Mr. Moberly is an intangible asset strategist and risk specialist and author of ‘Safeguarding Intangible Assets’ published by Elsevier in 2014, m.moberly@kpstrat.com View Mr. Moberly’s videos on YouTube at ‘safeguarding intangible assets’ or his CNN and CNBC videos at his webpage http://kpstrat.com

Reputation Risk: An Unwanted Dimension Following Aurora Theater Shootings…

July 25th, 2012. Published under Board oversight, Fiduciary Responsibility, Goodwill, Reputation risk.. No Comments.

Michael D. Moberly    July 25, 2012

Let me be very clear at the outset.  In no way do I, through the language I use in this post, intend to convey any disrespect to the victims and families or otherwise trivialize the recent tragic and senseless shootings that took place at the Aurora, Colorado movie theater.

It would be equally disturbing if this post was misinterpreted as representing an out-of-touch perspective interested only in Warner Brothers reputation and box office economics related to ‘The Dark Knight Rises’.

With that, allow me to explain to the global readership of this blog what influenced me to decide it was important to write this post.

First, while the words risk and threat have become firmly embedded in citizens’ lexicon following September 11, 2001, the Aurora theater tragedy served as one more kick-in-the-gut reality that risks-threats, of the type posed by James Holmes, are not especially difficult to foresee, after-the-fact.  In most instances, and Holmes will likely be no exception, an abundance of cautionary warning signs will surely be found.  Missing however, from those inevitable pieces of the puzzle though, is the essential ingredient we have come to call, connecting-the-dots.  Dot connection after all, is necessary for substantiation and probable cause to act proactively.  Correctly and consistently foreseeing the who, what, when, where, and how this or similar tragedies (risks, threats) materialize remains challenging on many levels.

One such level is identifying the presumed mental-emotional triggers (motives) that set in motion inexplicable elements such as Holmes’ site selection, timing, acquisition of weapons and ammunition, and planting explosive devices in his apartment, etc.  I must admit, I am not a strong advocate of so-called profilers.

A second factor that influenced me to write this post, very much integral to the first, evolved from a corporate reputation risk seminar which, coincidentally I attended just prior to the Aurora shootings.

There is certainly no shortage of examples in which corporate – institutional reputation risk has manifested itself with disastrous human and economic outcomes.  At Penn State, for example, the on-going revelations of child molestation were suppressed for 15+ years, while, in the Virginia Tech, Columbine, Gabby Gifford, and Aurora theater tragedies, everything unfolded in a matter of minutes.

For pundits reporting on the tragedies at Penn State it did not take long to ask the question or perhaps worse, offer an opinion, about whether and/or to what degree that series of tragedies would adversely affect student enrollment, fund raising, town and gown relations, and university economics, etc.   And, within 12 to 18 hours following the Aurora theater shootings, pundits were asking whether box office economics of ‘The Dark Knight Rises’ would be adversely affected and/or whether Warner Brothers should withdraw the movie from theaters in deference to the shooting victims and their families.  To be sure, Warner Brothers executives were asking the same questions and soliciting opinions from a bevy of reputation risk and public relations specialists nearby.   WB has now announced it would make a substantial donation to the shooting victims, presumably from the films’ box office receipts.

As most individuals occupying the c-suites and comprising the boards of companies understand; a company’s reputation, while it can be an extremely valuable intangible asset, it can also being a very fragile asset, vulnerable to an almost infinite number of risks and threats.

It used to take years of consistent mismanagement to destroy a company. Today, a company’s downward spiral, leading to an ultimate and premature demise can occur almost overnight.  But, it’s not just due to a broader range globally persistent and asymmetric risks, threats, and hazards that can impair a company’s reputation.  Rather, a company’s reputation demise is often linked to the speed which unchecked, dismissed, or overlooked reputational risks can materialize, escalate, and cascade throughout an enterprise and particularly to its stakeholders! (Adapted by Michael D. Moberly from remarks of Sir John Bond, Chairman of UK based HSBC)

Following the Aurora event, I’m quite confident that, in WB’s c-suites, someone posed the question whether the film should be pulled out of theaters altogether, not solely as a respectful gesture to the shooting victims and their families, but as part of a process to mitigate potential hemorrhaging of its reputation.  While I have no firsthand knowledge of such questions or conversations, I can apply Bob Woodward’s award winning narrative nonfiction style to suggest, with a high degree of confidence that such conversations did occur!

As minimal evidence of this, wisely, WB did pull trailers of its upcoming ‘Gangster Squad’ and it’s reported they opted to literally cut a ‘violent movie theater shooting’ scene from that film.  In my book, that’s a fairly clear example of reputation risk management at work!

I have frequently heard my colleagues say that once a company’s reputation has compromised through unforeseen events in which they are ill or unprepared to sensitively address or the company has not ‘banked’ a substantial amount of goodwill with its stakeholders in advance, reputation damage may well be inevitable.  Recouping lost economics, competitive advantages, and consumer loyalty will be a long, costly, and time consuming endeavor.

In the end, it appears WB’s respectful silence immediately following the Aurora shootings, may well have, in this instance anyway, served as an important contributor to mitigating reputation risk to itself, and to one of its products, i.e., the film, ‘The Dark Knight Rises’!

When innocent people die or are harmed in an incident such as Aurora, Columbine, Gabby Gifford, Penn State, or Virginia Tech, it is the epitome of corporate, institutional, and/or government insensitivity to suggest there is ever any good that follows.  In this instance however, it may well open eyes, minds, and doors to re-examining and re-calculating reputational risk by incorporating the variables noted here and not just to reduce the probability for its re-occurrence, but truly understand consumer reaction and resiliency, and the reputation of the victims!

Intangible Assets: They Need To Be On The Agendas Of Boards And Senior Managers

March 22nd, 2012. Published under Analysis and commentary, Board oversight, CFO's, Fiduciary Responsibility. No Comments.

Michael D. Moberly   March 22, 2012

I am extrapolating somewhat, but in Rob McLean’s fine article titled ‘Intellectual Asset Strategy and the Board of Directors’ (IAM December/January 2006), which I believe is still very relevant today, he says ‘boards are frequently drawn into intellectual asset management issues when there is a crisis, such as a lawsuit involving intellectual property rights’. ‘Few boards’, McLean suggests, and which I believe still reflects reality, ‘deliberately allocate time to intellectual asset issues as a matter of course’.

It’s unclear whether the references to boards in McLean’s piece are directed solely to large, Fortune 1000 types of companies or also include small medium enterprises and multinationals, i.e., SME’s and SMM’s respectively? While my professional interests tend to focus on the latter, my 20+ years of experience in intangible asset issues suggests that boards and senior management as a whole, convey little interest in the consistent stewardship, oversight, and management of those assets.

Consequently, as McLean points out, intangibles remain largely relegated to being only periodically included on board and/or c-suite agendas. In part, that’s because intangibles are still frequently perceived as being primarily legal and/or accounting processes/functions versus fiduciary (strategic business) decisions.  McLean describes four levels of engagement to characterize boards’ interest, i.e., in…

Level I – boards’ are generally unaware of the importance of intangible (intellectual) assets and related strategies relative to company strategy or competitive industry trends…

Level II – boards’ may be peripherally aware that intangible (intellectual) assets have some importance in strategy and competitive trends at the company level…

Level III – boards’ have a high-level understanding that intangible (intellectual) assets have some importance in strategy and competitive trends at the company level…

Level IV – boards’ have a detailed understanding of the role that intangible (intellectual) assets and strategy play in strategic planning at both the company and business unit level…

McLean believes that if boards are being honest, most would characterize themselves as being in either Level I or II, a perspective which I believe is probably most reflective of today’s circumstance even though it suggests, if true, boards may well be out of touch with their fiduciary responsibilities as described in Stone v Ritter.  I suspect many readers find themselves in agreement with McLean’s assessment as being reflective of their personal observations and experiences.

So, however full board and senior managers’ plates may already be, their stewardship, oversight, and management of intangibles (intellectual) assets, i.e., leadership in sustaining control, use, ownership, and monitoring their value and materiality should become permanent fixtures on their respective agendas.  From the board and senior management perspectives, there are three broad, yet quite plausible, starting points to achieve this:

First – consider making changes in company governance structure and practices to genuinely reflect and be aligned with the economic fact that 65+% of most company’s value, sources of revenue, building blocks for growth and sustainability evolve directly from intangible (intellectual) assets.

Second – takes steps to ensure the right people receive the right information that allow them to focus on the right areas with respect to effectively and efficiently utilizing the company’s intangible (intellectual) assets. This includes information and insights related to maximizing, leveraging, and extracting value and whatever else can position those assets to deliver (more) value and competitive advantages.

Third – ensure the underlying responsibilities for identifying, assessing, and sustaining (protecting, preserving) control, use, ownership, and monitoring value and materiality of those assets is collaborative by including intangible asset specialists, legal counsel, accounting, risk management, IT, and relevant business units where intangible (intellectual) assets routinely originate and percolate!

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Fiduciary Responsibilities for Senior Managers and Boards: Intangible Assets…

February 28th, 2012. Published under Board oversight, Fiduciary Responsibility. No Comments.

 Michael D. Moberly    February 28, 2012

In Stone v. Ritter a Delaware court (2006) drew attention to board – director oversight (management, stewardship) of compliance programs and company assets.  In part, the court’s decision read…

 ’…ensuring the board is kept apprised of and 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…’ 

A fiduciary responsibility to be kept apprised of and know what’s going on inside a company…now that’s a decision that goes to the very heart of today’s go fast, go hard, go global intangible asset driven businesses! 

Rebecca Walker suggests in her paper ’Board Oversight of a Compliance Program: The Implications of Stone v. Ritter’, this decision will come to be viewed (applied) less for its focus on board oversight of compliance programs per se, and more for bringing clarity to what actually constitutes ‘board oversight’ of a company’s assets, and by extension, its intangible assets.

This is a particularly pertinent message at a time when rising percentages, i.e., 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangible assets.  So, any declaration, judicial or otherwise, that this increasingly valuable asset class now imposes fiduciary responsibilities at the board and senior management levels respectively is very significant in my view!

Accommodating the spirit and intent of the Stone v Ritter decision, on the intangible asset side, is certainly achievable for companies.  The approach described here however, extends beyond the decision’s minimums. It is intended to position boards and senior management (c-suites) to recognize and ultimately demand relevant information including asset performance indicators, i.e., to identify and assess:

  • intangible assets’ stability, defensibility, and contributory value and the various contexts in which intangibles are in play,
  • strategies to prevent, counter, and/or mitigate risks, threats, and vulnerabilities to the assets which  must extend beyond conventional snap-shots-in-time audits or checklists to include a range of events and/or circumstances that could, if materialized, impair, erode, and/or undermine the assets’ contributory value, competitive – market space advantages.
  • techniques for structuring business transactions to sustain/preserve the desired levels of control, use, ownership, and value of the (intangible) assets in both pre and post transaction contexts
  • how to achieve greater efficiencies and profitability when (intangible) asset stewardship, oversight and management are aligned with a company’s core mission, strategic planning, financial management, and the life – value – functionality cycle of the assets.

Absent consistent efforts to ensure each of the above occurs, boards and senior management may well be falling short of the fiduciary responsibilities articulated in Stone v Ritter, i.e., to know what’s going on inside their company!

Too, many experts suggest it is entirely conceivable that boards and senior managers could be held (personally) liable for risks that materialize and create adverse economic, competitive advantage, stakeholder effects, etc.

However, as boards and senior management integrate each of the above into their information demand regimen, it will elevate their confidence in knowing what information is relevant and demanding it be timely, sufficient, and accurate.

Whether, or to what extent business leaders accept, interpret, and execute on the implications of Stone v Ritter remains to be seen. What should not remain to be seen however is that today’s global business transaction environment is increasingly competitive, global, predatorial, winner-take-all, and attendant with both risks and  potentially very lucrative outcomes. 

Collectively, this obliges boards and senior managers to assume a more ‘hands and eyes on’ regimen regarding the stewardship, oversight, and management of company’s assets, particularly, intangible assets.

Safeguarding A Company’s IP and Intangible Assets: Awareness, Attitudes, and Enforcement

January 30th, 2012. Published under Analysis & Commentary: Studies, Research, White Pap, Board oversight, Enterprise risk management., Insider Threats, Intangible Asset Value. No Comments.

Michael D. Moberly   January 30, 2012

In a British Telecom study of intellectual property infringement in the workplace, i.e., awareness, employee attitudes and overall enforcement titled ‘The Hidden Marketplace’ (2008) it was reported, to no particular surprise, that there is growing agreement and appreciation among company management teams (in the UK) that intellectual property and other forms of intangible assets are indeed valuable and warrant not just protection, but regular monitoring as well. 

This still very relevant UK-based research focused primarily on the demand side, i.e., employee-consumer interest and demand for acquiring counterfeit goods while at workplace brought much needed clarity to the ’hidden marketplaces’.

A particular finding stood out in my view, but still, no surprise to professionals serving this arena, is that the parallel perspectives of IP value and protection are frequently more aspirational than reality.  That is, management teams are increasingly likely to find themselves:

  • distracted by other, seemingly more pressing issues
  • lacking experience to design and execute procedures and practices to safeguard valuable (intangible) assets that are not physical or tangible.

My many years of experience in this arena find the above to be a fairly broad managerial and oversight conundrum that in part, is reflective of the rapidity which companies in all sectors have become enmeshed in the global knowledge – intangible asset dominated business (transaction) economy.     

While increasing percentages of businesses possess significant portfolios of valuable knowledge-based assets, it’s still common to find many, if not most, to have only the minimum, if any, safeguards or monitoring capabilities in place for their intangible assets.  

A company or management team’s rationale for this oversight is often rooted in the unsustainable notion that instituting such (offensive – defensive) practices constitute operational luxuries vs. business necessities.  

Such positions are particularly revealing given the economic fact that today, 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangible assets.  That’s a reality that must be factored into a company’s enterprise risk management equation.

Here are some key starting points for developing intangible asset safeguard and monitoring initiatives:

  • ensure conventional intangible assets, i.e., intellectual properties, are consistently and properly registered
  • broaden the focus of (intangible) asset protection practices to encompass sustaining control, use, ownership, and monitoring their value and materiality
  • initiate intangible asset awareness-recognition programs for management teams, c-suites, and boards that reflect their fiduciary responsibilities evolving from Stone v Ritter
  • develop capabilities to rapidly identify and assess (monitor) any changes in an assets’ contributory value and promptly take action to mitigate adverse economic – competitive advantage consequences.

An important outgrowth of the study was that it identified relevant tools and assistance for employers and enforcement agencies to address IP theft, infringement and the counterfeit goods problem from an inside (internal) perspective.

This study also examined three additional issues pertinent to the global universality of  ‘hidden marketplaces’, i.e.,

1. employee attitudes regarding the value of intangible assets, particularly intellectual property

2.  company management team approaches to safeguarding its valuable intangible assets including IP

3. the levels of awareness that exist among management teams about near and long term problems and adverse consequences (what I often refer to as cascading affects) associated with theft – misappropriation of IP (intangible assets) from the workplace. 

My experience suggests, management teams would likely find these issues more relevant and become more receptive to ‘tackling them’ if they were framed in normative contexts as conveyed below, to spark discussion and deliberation, i.e., as consistent action items on c-suite and board agendas.  For example:

  • what should management team attitudes be about safeguarding their company’s most valuable assets?
  • what is the necessary level of awareness management teams and employees should possess to sustain control, use, ownership and monitor the value and materiality of their intangible assets in order to bring the most benefit and return to their company?

The answer to these normatively phrased questions lie:

  • at the heart of: the knowledge – intangible asset based economy
  • with c-suites, boards, and management teams taking action that truly reflects their fiduciary responsibilities
    • in recognizing 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability
    • with the ability to sustain control, use, ownership, and consistently monitor the value and materiality of those assets.  

Absent such recognition and the implementation of effective procedures and practices to achieve this state, it’s becoming increasingly unlikely a company will experience the levels of growth, competitive advantage, and profitability which most are capable!

(This post was inspired by a study titled ‘The Hidden Marketplace: Protecting Intellectual Property In The Workplace – Research Into IP Infringement in the Workplace – Awareness, Attitudes, and Enforcement’ produced by Patricia Lennon of BT Internet in December, 2008)

Intangible Assets = Competitive Advantages

January 16th, 2012. Published under Board oversight, CFO's, Fiduciary Responsibility, Intangibles as strategic assets. No Comments.

Michael D. Moberly   January 16, 2012

First, it’s important to recognize that a company’s competitive advantages (business differentiators) are, in most instances, intangible assets. 

Second, in today’s globally predatorial, aggressive, and winner-take-all business (transaction) environment, companies need to put practices and procedures in place to render those competitive advantages (intangible assets) as durable and resilient as possible to an ever growing array of risks, e.g., undermining, de-valuation, imitation,  infringement, etc.  

In other words, the stability, fragility, defensibility, materiality, and value of a company’s intangible asset-based competitive advantages should be routinely monitored and assessed.

To more fully understand these necessities I rely on the following definitions.  They serve to guide and bring consistency to my perspective and that of my clients in terms of how they should conceive (equate) a company’s competitive advantages as intangible assets, i.e., they

1.  are unique blends and/or collections of attributes, processes, assets, relationships, history, and even market conditions that a company exploits to differentiate itself, and thus create value. (Michael Porter).

2. lie in the unique proprietary knowledge employee’s possess, and the special value that evolves from understanding how to apply that (unique) knowledge to provide the real edge. (McKinsey)

The word ‘unique’ is the common denominator. However, as effectively conveyed by Ed Adkins (www.mystrategicplan.com) developing competitive advantages (intangibles) isn’t always easy or straightforward, because, in many instances, they evolve (over a period of time) through:

  • recognition, and
  • nurturing

Unfortunately, there are a significant number of management teams, D&O’s, boards, and business unit managers who remain unconvinced or dismissive of the economic fact that today…

 …65+% of a company’s value, sources of revenue, and ‘building blocks’ for  growth and sustainability directly evolve from intangible assets.

Only through the effective and consistent stewardship, oversight, and management of intangible asset-based competitive advantages can they form the foundation for sustainability and profitability, requisites that must not be relegated to mere or periodic (managerial) options, rather understood as fiduciary responsibilities!

Intangible Asset Clarity For D&O and Board Oversight

January 11th, 2012. Published under Board oversight, Fiduciary Responsibility. No Comments.

Michael D. Moberly   January 11, 2011

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 favorable precedents as well as a basis for framing litigation arguments.  The courts’ opinion in Stone v. Ritter truly carries such potential, particularly when board/director liability is at issue relative to the effectiveness, and even perhaps questioning the depth (comprehensiveness) in the oversight (stewardship, management) of a company’s compliance programs.

An inference 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 the decision 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 much needed clarity to what actually constitutes ‘board oversight’ 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 and valuable asset class, is certainly a good thing!  Particularly when the elements as outlined below will not likely be overlooked by an opposing litigator. 

Integral to Stone v Ritter of course is enterprise risk management (ERM) and being ’proactively defensive’ against (company) risks.  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 accommodate a boards’ now 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…’ 

This will be achieved by expanding the type, quality and timeliness of information that boards receive by:

  • scheduling meetings with members of the management team to inquire about:
    • how the company’s (internal, external) reporting system is structured
    • the company’s investigation policies relative to suspected incidences of (internal, external) misconduc
    • employee perceptions of the company’s reporting – compliance – audit programs, and sufficiency of employee training in this arena.
  • structuring the company’s reporting (compliance) programs to include sufficient resources and authority for effective execution.
  • examining the manner in which the company actually conducts risk assessments, prioritizes its risks, and actually addresses (prevents, mitigates) those risks. 

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Risk Intelligent Boards and Intangible Assets

January 5th, 2012. Published under Board oversight, CFO's, Fiduciary Responsibility. No Comments.

 Michael D. Moberly    January 5, 2012

I tend to frame business issues and transactions through a broad, albeit a single lens; the lens of risk.  This includes identifying the array of potential risks and then considering various (viable) strategies to effectively mitigate and/or manage those risks on behalf of a company.  

I also tend to focus on risks related to sustaining control, use, ownership, and monitoring value and materiality of company intangible assets and intellectual properties (IP) because intangibles are, by far, the most significant sources of company value, revenue, and growth potential.

Unfortunately today, in many enterprise risk management initiatives, there remain boards, c-suites and management teams that do not share or embrace either of those perspectives.  That’s because, in part, they bring their own views and experiences about risk to the boardroom which, I have found to occasionally be out-of-step with the expanding spectrum and asymmetric nature of today’s truly global business and transaction risks. 

When such a dismissive or ‘looking through a rearview mirror’ attitude prevails in boardrooms and c-suites it presents some formidable challenges for change absent persuasive re-orientation, the occurrence of a costly adverse (risk) event, or recognition of fiduciary responsibilities to do otherwise, that can prompt boards to…

  • find a common, current, and forward looking context in which to frame and build a strategic consensus for understanding how best to approach today’s business risks and prioritize – mitigate those risks on behalf of the company
  • initiate action to design an objective and measurable framework to benchmark risks that is not overly weighted to subjective anecdotal experiences.

Another consequence of ‘risk dismissiveness’ in boardrooms is that real and emerging risks are less likely to be recognized particularly in terms of constituting necessary or routine discussion – action items on (board) agendas. 

To this point, a 2008 Deloitte report titled ‘The Risk Intelligent Board’ suggested that a significant percentage of board members conceive-address a company’s risks…

  •  solely at an intuitive level, or by relying (sometimes exclusively) on perspectives expressed by internal risk managers or a risk management committee
  • in relatively narrow contexts that limits their (risk) identification, prevention, and mitigation focus to tangible (physical) assets, not intangible assets where a majority of a company’s value and sources of revenue and growth potential actually lie.

 While the Deloitte report quite courteously suggests there is nothing especially wrong with the above perspectives, they do represent the proverbial ‘half a loaf’ approach in my view.  Broadly speaking, the identification, oversight, and management of a company’s risks:

  • should originate in boardrooms
  • include a full spectrum of risks associated with near and long term business transactions, processes, and strategies, and
  • absolutely must include a company’s intangible assets. 

As boards, c-suites, and management teams elevate risk to being a routine point of inquiry and action, emerging, as well as persistent risks will be consistently exposed and addressed and ultimately work in a company’s favor by diminishing the tendency to manage risk as subjective, anecdotal, or isolated (one-off) events.

It remains an economic fact that 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability actually lie in – directly evolve from intangible (not physical-tangible) assets.  That said, it’s difficult to appreciate why some boards are not more attuned to their company’s intangibles, seek the necessary orientation, or otherwise secure the expertise to actually become Deloitte’s version of a ’risk intelligent board’!

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Unlocking Managerial Mysteries Of Intangible Assets

January 3rd, 2012. Published under Analysis and commentary, Board oversight, CFO's, Fiduciary Responsibility, Intangibles as strategic assets. No Comments.

 Michael D. Moberly   January 3, 2012     

Unfortunately, discussions about a company’s intangible assets rarely prompt boards’, c-suites’ or management teams’ pulse to race as I consistently try to make the case that it should.  There are a variety of reasons why either group tend not to attach higher priorities to engaging, utilizing, and building (more) value in their company’s intangibles.

For some, the subject of intangible assets remains shrouded in conventional ‘mba’ speak that sometimes is out-of-step with the realities of the knowledge-based economy and the economic fact that, conservatively speaking, 65+% of most company’s value, drivers/sources of revenue, and building blocks for growth and sustainability today have shifted from tangible (physical) assets, i.e., buildings, equipment, and inventory, etc., to intangible assets, i.e., intellectual property, knowhow, reputation, brand, goodwill, etc. 

No doubt, some of the reluctance to aggressively engage and exploit intangibles is attributed to the still much admired Deming perspective which espouses ‘one can’t manage what one can’t measure’.  Some company management teams, in my view, have misinterpreted this long standing tenant of business management to mean that intangibles, since they lack physicality, can’t be managed, measured, or accounted for effectively.

In other words, because a company’s key assets, i.e., its intangibles, lack physicality, management teams, absent contemporary training regarding their usefulness may be less inclined or receptive to recognizing and engaging them as (potential) sources of value and competitive advantage. 

I have found numerous instances in which a company’s intangibles are lying stagnant and not being acknowledged or effectively utilized, merely awaiting management team action.  But, because they’re not seeable or touchable in a conventional (Deming) context, their contributions to (company) value, revenue, and sustainability remain absent as action items on many board room – c-suite agendas.

There should not be any particular mystery, managerial, or otherwise, about how to identify and effectively utilize and exploit a company’s intangible assets!  Yes, there is some specialization that is helpful insofar as identifying, unraveling, positioning, leveraging, and maximizing intangibles contributory value.  In most instances, such expertise can be readily acquired without the encumbrances of conventional ’mba’ speak that I believe still tends to attach more credence to tangible (physical) assets.

Probably, the key ’managerial mysteries’ about intangible assets that must be universally overcome are the:

  • challenges related to their lack of physicality, and
  • notable absence from company balance sheets. 

There’s little question that most management teams recognize their existence in the form of brand, reputation, image, goodwill, intellectual and relationship capital, etc. and the various ways they create competitive advantages and contribute to a company’s sustainability.  But,  management teams’ can’t necessarily touch or see those assets in the same manner they can conventional physical or tangible assets which are routinely accounted for – reported on company balance sheets.

To further help demystify intangible assets, important starting points are 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 practices, e.g., knowhow 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 as a whole to identify and respond to market opportunities to accommodate today’s globally competitive, predatorial, and winner-take-all business transaction environment.

The objective is to become a more forward looking – forward thinking company through more effective identification, assessment, utilization, management, and reporting of intangible assets.

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

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com