Intangibles of Extreme Business Decision Making…

Making business decisions under extreme time constraints, limited opportunity for consultation, without considering the intangible assets in play, can be irreversibly consequential…

‘This is not a drill’a false missile alert in Hawaii last weekend. William Perry recognizes how serious the ‘Hawaii false alert error’ was and is leading – advocating change from a single decision maker, launch-on-warning.  Perry leaves no doubt, it could have been catastrophically worse.  Perry, a top Pentagon official throughout the Cold War and defense secretary in the 1990s during the Clinton administration, and a Senior Fellow at Stanford University’s Hoover Institution, is one of a few who are

NPR’s, Morning Edition program spoke with Secretary Perry…yesterday (January 16th) wherein he (Perry) stated very matter-of-factly, the risk, i.e., probability, vulnerability, and global criticality of an accidental – unintended nuclear war to materialize, should not be characterized as merely a sci-fi hypothetical. warnings

That’s because, comparable risks have previously materialized…something which Perry has personal knowledge and describes openly in his role as founder of the William Perry Project ‘to end the threat of nuclear war’,

Perry hopes the recent ‘Hawaii false alert error’…especially, the failed processes-procedures which led to it’s occurrence, will influence the civilian and defense personnel responsible for executing bona fide alerts, and the use of nuclear weapon response-reaction, be closely re-examined because, obviously, the consequences of error and/or system failure would, there could be no rational argument otherwise, be catastrophic.

Of particular-interest to this blog is how…nuclear strike warning systems advise the chain of decision-makers, which presumably ends with the President.

In at least one previous U.S. instance of a system failure…which Secretary Perry experienced during his tenure as Secretary of Defense, he describes, the globe was very fortunate in having a responsible and curious ‘watch officer’ who, upon receiving a warning of ‘incoming missiles from Russia’ made the decision to ‘dig deeper’.

So, instead of calling – waking the president, as ‘missile launch-on-warning’ procedures dictated…actually provided this watch officer with five to ten minutes to make-a-decision to commence the launch retaliation procedure…

  • this watch officer concluded the information he had received constituted an error.
  • Secretary Perry knows this because the watch officer called him in the middle of the night to describe what had occurred and his decision.

However, as Steve Inskeep (NPR journalist) posed this question…“insofar as you know, Mr. Secretary, is this still the case; that one person could make the right or wrong decision, and it could trigger everything in the U.S. military early warning system?

Secretary Perry response was yes, one person can make that decision…however, if there’s time, there will be consultation with other advisors for their judgments on the matter.  But, if there is neither opportunity + time, then ‘the decision’ may go directly to the president.  So, if the president commands a retaliatory launch (strike), but subsequently advised a mistake – error had occurred, there is, at present, no recall or abort (fail safe) options, once U.S. nuclear missiles are in flight.  Sobering, uh?

So, is it necessary, is it correct, for deterrence purposes…for a U.S. president to be put in-a-position to make such an extraordinary and irreversible decision in 5 – 10 minutes, especially when there may be little or no opportunity + time for objective consultation and thought from others?

Perry says, with obvious authoritative knowledge on this matter…the reason the U.S. has a launch-on-warning policy, is because, the U.S. does not want to be vulnerable – assume the risk of losing its fixed ICBM’s (intercontinental ballistic missiles) to an adversary’s attack.  Instead, proponents of launch-on-warning argue, this policy will mitigate such fixed risks.

There are others, Perry among them, who believe the (existing) launch-on-warning policy should be more balanced…especially today, against the risk (vulnerability, probability, and cascading effects) of human error or a computer system hacking event which can, among other things…

  • mimic an adversary’s incoming missile launch (attack), or
  • a more localized – regionalized ‘dirty bomb’ attack by an adversary which range from nuclear armed nation states to organized attacks by terrorist groups.

One alternative to the ‘launch-on-warning’ order…is to ‘ride out an (incoming missile) attack’. All adversaries know the locations of U.S. ICBM silos. Should one naively doubt this, click on Google Earth, where one can readily identify many of the fixed locations of U.S. ICBM’s.

To the contrary, Perry believes there are sufficient numbers of missiles – warheads housed in…U.S. submarines and aircraft stationed – deployed globally to mount an effective and devastating retaliation, and, these warheads can presumably be ‘called back’ as circumstances warrant.

So, Perry argues authoritatively, a plausible solution to the basic problem associated with ‘launch on warning’…are (a.) decision-making time, and (b.) irreversibility. Thus, the U.S. should consider moving away from major dependence on ICBMs either by (c.) riding an attack out, or by (d.) changing our deterrence force and re-action to be submarine and aircraft dominant due to their (e.) stealthy maneuverability, and (f.) subject to recall.

Again, NPR’s Steve Inskeep describes a perspective expressed by Dean Acheson…a former secretary of state post-WWII, ‘the U.S. president, who makes the ultimate decision here, i.e., a nuclear retaliation, ought to have the opportunity (time, consultation, etc.) to sit quietly and think really hard about what his decision would be’.

Perry’s response was…

  • no one person, no matter how wise he or she is, should have to make that decision. We should change our ‘launch-on-warning’ policy so that no single person makes that decision.
  • and, Perry advocated, the U.S. should also change that process, so that the decision is
    • is made by more than one person, and
    • there is time + opportunity for objective consultation with others, especially in this era when uncertainty (error, adversary intrusion) is consistently present.

Overall, the U.S. policy of ‘launch on warning’ terrifies me...Perry says, especially when we factor the likely reality that a high percentage of citizens do not appear to understand this issue, i.e., starting a war by mistake is probably greater today than it was during the Cold War because…

  • the things that can cause false alerts are not limited to merely a single person making the wrong judgment.

Today, most every country is vulnerable to malicious hacking into our computer systems by so-called malevolent individuals or by country – state sponsored adversaries and terrorist organizations bent on massive destruction of those with differing views. So, the problem which the U.S. experiences today is much greater than it was during the Cold War years of the late 1950’s, 1960’s, 1970’s, and early to mid-1980’s.

So, chief intangible asset officers for companies, the time is here…achieving consensus in favor of this perspective, will surely prompt challenges internally and externally from those not merely opposed to change, but those who find intangibles unwieldy due, in large part, to their lack of physicality.

Stone v. Ritter (and, In Re Caremark, In Re Disney, etc.) however...are court cases that emphasize the importance and provide practical context to board/director (fiduciary responsibilities) for the collective – collaborative SOM – stewardship oversight, and management of all company assets, particularly, intangibles.

Yes, these are Delaware cases, and yes, they are 2006 and 1996 decisions respectively…but they remain relevant issues that warrant collective – collaborative board, director, and management team attention. Too, these cases underlie the economic fact – business reality that 80+% of most company’s sources of revenue, value, and building blocks for future growth creation and sustainability today lie in intangible (non-physical) assets, not tangible (physical) assets.

Perhaps most importantly, these cases bring clarity to the necessity…that boards, management teams, and directors be kept apprised of what’s going on inside their company as measured by…

         a. good faith duty, and/or

         b. duty of loyalty, to ensure their company has sufficient IA value – competitive advantage monitoring and                       reporting systems in place to routinely and properly keep decision makers apprised, i.e.,

         c. timely and accurate information, that is sufficient to allow them (within their respective scope) to

         d. reach informed judgements concerning a company’s (IA) performance, value, sources of revenue,                                     competitiveness, sustainability, stability, and risk.

In other words, today, absent intangible assets stewardship, oversight, monitoring, and management…by boards, directors, and management teams to ensure each occurs, may well be (in light of court decisions) interpreted as failing to satisfy their duty to be reasonably informed about the company and therefore, be held personally liable for problems that arise.

So, it is, essential, in today’s extraordinarily competitive, aggressive, predatorial…and ‘winner-take-all’ (global) business and transaction environment, that boards, directors, and management teams assume a more ‘hands on’ position with respect to the SOM (stewardship, oversight, and management) of their valuable, competitive, and otherwise distinguishing intangible assets.

Why, because, as conveyed in Stone v. Ritter…important and necessary information regarding intangible assets, failed to reach decision-makers because of ineffective internal (company) controls and regular monitoring of those controls.

So, the significance and applicability of Stone v. Ritter to company boards, directors, and management/leadership teams…could be interpreted as persons holding those positions may, at least in part, be responsible for damages resulting from legal violations committed by employees, in instances in which is demonstrated there was a failure to…

  • implement reporting or information systems and controls, and
  • regularly monitor such systems, to
  • ensure these decision makers are receiving information relevant to the company’s operation,
  • with particular emphasis on intangible assets.

There are no grand illusions here…that the either of the court cases cited above, or…

  • a company’s size, revenues, value, industry sector,
  • level of intangible asset intensity and dependence,
  • will be sufficient (standing alone) to prompt all management teams and boards to
  • regard the contributions of a chief intangible asset officer (strategist, risk specialist) as being necessary,
  • or merely a redundant position or impediment, to achieving a company’s (strategic) goals and objectives.

There is one thing I remain confident…management teams and boards who opt to be dismissive of the intangible assets their business acquires and develops or tables the issue indefinitely, without deliberation, would be doing so at their financial – competitive peril.

That’s because, there is this pesky business operation reality – economic fact that…

  • 80+% of most company’s value, sources of revenue, competitiveness, sustainability, resilience, and future wealth creation potential today lie in – directly emerge from intangible assets.

So, when the proposition is correctly and factually framed…management teams and boards are compelled -have a fiduciary responsibility to objectively ask…

  • ‘is their company effectively and consistently positioned, insofar as possessing the expertise and skill sets, to identify, distinguish, unravel, assess, nurture, utilize, bundle, exploit, and extract as much value and competitive advantage as possible from its intangible assets…’
  • ‘while simultaneously protecting, sustaining, and monitoring the key assets’ value and materiality’?

So, instead of assuming satisfaction…with the way things have always been done, or worse, assuming all things intangible are either tactical legal or accounting decisions, not strategic business decisions, management teams and boards globally are obliged to critically and objectively assess ‘has the time come’ for their company to aggressively engage their intangibles, yes, to be sure!

As management teams and boards ‘scratch the surface’, sometimes ever so slightly to…reflect on how much of their company’s value, revenue, sustainability, growth, and future wealth creation are dependent on  intangibles, the aforementioned economic (80+%) fact should resonate and manifest as an irrefutably strong fiduciary rationale to become the best stewards, overseers, managers, and monitors of their company’s intangible assets.

Michael D. Moberly January 17, 2018 [email protected] ‘The Business Intangible Asset Blog’ since May 2006, where one’s attention span, intangible assets, and solutions converge!

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