Michael D. Moberly April 30, 2013 ‘A blog where attention span matters’.
Fiduciary responsibilities include circumstances in which one individual has placed substantial trust and confidence in another to manage and safeguard money and/or property, either tangible and intangible, I might add.
A fiduciary relationship is also one in which an individual has an obligation to act for another’s benefit, be they stakeholders or stockholders, etc., in which expectations of faith and confidence are presumed. In its most basic form, a fiduciary relationship extends to numerous instances in which one party, i.e., the beneficiary, places confidence in the another, i.e., the fiduciary, and such confidence is accepted.
A fiduciary responsibility though, generally establishes only when such ‘faith and confidence’ extended by one party, is actually accepted by the other party. And, on somewhat of a cautionary note however, mere respect for another individual’s judgment or general trust one may have in an individuals’ character are generally deemed insufficient for creating – establishing a defensible fiduciary relationship.
Insofar as the duties – responsibilities associated with a fiduciary relationship, they include loyalty and reasonable care of the assets (again, tangible as well as intangible) entrusted to the fiduciary’s care, which I refer in the instance of intangible assets, (a.) stewardship, (b.) oversight, and (c.) management. Too, each of these fiduciary’s actions (responsibilities) are expected to be performed for the advantage and benefit of the beneficiary thereby creating (a.) dependence by the beneficiary, and (b.) influence by the fiduciary.
Anytime when fiduciary responsibilities regarding intangible assets are examined, two aspects must be fully considered, (1.) it is an economic fact – business reality that 80+% of most company’s value, sources of revenue, globally lie in – directly evolve from intangible assets, and (2.) Stone v. Ritter (2006), a Delaware court, in a very substantive way, 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…’
Rebecca Walker describes this decision in her paper ’Board Oversight of a Compliance Program: The Implications of Stone v. Ritter’, this particular decision as numerous experts assert, 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.
Again, the quite clear message conveyed by Stone v. Ritter came at a time when increasing percentages of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability and innovation were evolving directly from intangible assets. So, any declaration, judicial or otherwise, that this increasingly valuable asset class, i.e., intangible assets, now has fiduciary responsibilities attached at the board and senior management levels is indeed significant and worthy of our notice.
I respectfully add however, that the insights and strategies described here extend well beyond the minimums articulated in the Stone v. Ritter court decision. Accommodating the spirit and intent (impact) of Stone v Ritter to the intangible asset side of any business, is certainly achievable, especially when senior management teams, including security and risk management executives, accounting, and legal counsel are engaged in amiable collaboration.
A critical key of course is that boards and senior management are well prepared to (a.) recognize what information (about intangible assets) they need, and (b.) demand the relevant and objective information regarding intangible asset asset performance (indicators) and other equally important quantifiers as the basis for identifying and objectively assessing…
- intangible assets’ stability, defensibility, and contributory value.
- the various transaction contexts in which intangibles will be in play and/or elements to a transaction
- strategies to prevent, counter, and/or mitigate risks and vulnerabilities to the assets that extend well beyond conventional snap-shots-in-time audits or mediocre checklists to include a range of adverse events, acts, and/or circumstances that will, when materialized, impair, erode, and/or undermine the assets’ contributory value, and 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 value – functionality cycle of the assets.
Absent consistent efforts to ensure each of the above occurs, boards and senior management will fall short of the fiduciary responsibilities articulated in Stone v Ritter, i.e., to know what’s going on inside their company!
Each blog post is researched and written by me with the genuine intent it serves as a useful and respectful medium to elevate awareness and appreciation for intangible assets throughout the global business community. Most of my posts focus on issues related to identifying, unraveling, and sustaining control, use, ownership, and monitoring asset value, materiality, and risk. As such, my blog posts are not intended to be quick bites of unsubstantiated commentary or information piggy-backed to other sources.
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