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.