Michael D. Moberly December 2, 2008
What follows are a series of perspectives regarding the value of intangible assets relative to the current financial crisis, aka recession. While there are numerous individuals whose expertise in matters related to the monetization and/or devaluation of intangible assets surpasses my own, I do believe, rather strongly, that the overall state of intangibles still remains sufficiently untested to respectfully leave the door, at least ajar, to seriously present these perspectives with a straight face.
First, let me acknowledge upfront, I am an unabashed advocate of intangible assets, particularly in the areas which represent my contributions to this important field, e.g., identifying, unraveling, and sustaining (protecting, preserving) control, use, ownership, and value of the assets. Second, I remain unconvinced whether the value of a company’s intangible assets experience comparable devaluation in magnitude as have, for example, a company’s stock price over the past 90 days.
As I have stated many times previously (e.g., October 22d post, ‘The Financial Crisis Is A Perfect Time To Kick Start Discussions About Intangible Assets), I choose to frame these perspectives not solely through a Wall street lens, rather through the lens of thousands of main street and side street small, medium enterprises (SME’s) and small, medium multinationals (SMM’s) that are proportionately rich in intangibles. But, not wholly unlike their much larger NYSE and NASDAQ cousins, intangible assets still routinely go, in many instances, un-acknowledged, under-valued, under-appreciated, and under-utilized. And, there, in my judgment, lies the heart and soul of the problem, as well as the challenge.
I seek not to start with broad recommendations with high hurdles that necessitate massive restructuring of long-standing business practices, government policies and regulations, i.e., reaching regulatory consensus on reporting-accounting of intangibles on balance sheets. Rather, I seek to start, as I often do, by delving into what I believe are rudimentary issues about intangible assets. For purposes of analogy, I will use a west coast company, which I am somewhat familiar, that recently laid off and literally dismantled a long standing and globally embedded (internal) services unit.
A significant percentage of the laid off employees possessed not merely company – culture specific skills, rather readily transferrable and specialized intellectual capital, expertise, and know how, i.e., intangible assets.
While the demand for this company’s product (and related support services) will surely continue, albeit at a signficantly reduced pace, does the value of the company’s intangible assets decline proportionately when skilled employees are laid off. Keeping in mind, a significant percentage (perhaps 75+%) of this particular ‘silicon valley’ company’s overall value, sources of revenue, sustainability, and foundation for future wealth creation lie in – were directly linked to the intangible assets produced and delivered by at least, some of the now laid off employees.
For this particular company, and thousands of others facing similar challenges today, an underlying ‘blind spot’ of decisions makers, in my view, is that when employees are laid off valuable and sometimes irreplaceable, or, at least not readily replaceable, intangible assets, that have driven value, revenue, sustainability, and underlie (the company’s) competitive advantages, etc., are ‘walking out the door’ as well.
Why is it then, that for most companies, shedding employees represents decision makers’ initial response to financial crisis? Obviously, a significant rationale lies in the reality that fewer employees, quickly, if not immediately, translate as less payroll, hence less costs to the company. In these instances, it’s likely decision makers’ perceive employees more as tangible (fixed) assets, rather than not-easy-to-replace intangible assets. Company decision makers would be well served to look for options!