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