Putting intangible assets into perspective
There is more demand than ever for board-level visibility of intangible assets, but we are only at the beginning of the journey
Corporate boards and individual directors have many responsibilities, some of which carry significant personal risk and accountability. On the financial side, we have seen many cases where the solvency or financial performance of large corporations (eg, Tesco or Carillion) has hit the news, and management and their auditors have been held accountable for failing to see the big picture and pre-empt the risks – often with catastrophic outcomes for employees, customers and shareholders. On the intangibles side, we have seen significant shareholder activism when registered intangibles allegedly have not been managed optimally (eg, Tessera and AOL).
In the tech economy, where businesses often have little product stock or physical assets, we are regularly reminded that over 80% of a company’s value is attributed to intangible assets. Yet how many directors – who are clearly guardians of this value – can explain what intangibles their business owns, how well they are managed and what is being done to develop, manage and exploit them, either tactically or in the long term?
A push for visibility
We are seeing a noticeable shift in attitude and behaviours around the visibility and relevancy of intangible assets. Traditionally, larger corporate clients have focused on the careful management and exploitation of their registered IP assets (eg, patents, design rights and trademarks). On the other hand, smaller clients are more interested in seeing their full intangible estate and leveraging this in funding rounds, partner negotiations and, ultimately, in any exit event. Here, an IP audit process will help to identify all the assets and show how they can be further developed and exploited to maximise the enterprise’s value. This desire to have a holistic and more encompassing view of the full intangible asset estate is slowly being adopted by more forward-thinking large corporates.
Despite being at the beginning of the journey, we are seeing a shift and desire to have a more in-depth view and understanding of intangible assets. Perhaps changes in trade secret legislation and recent newsworthy events in this area, as well as significant political rhetoric around intellectual property in the US/China trade wars, are acting as catalysts. We are now receiving and servicing requests to deploy board-level visibility and measure the effectiveness of innovation, ensure effective management and attempt to see both where the return on investment is being derived and where to focus investment and management attention in the future.
Creating an in-depth view of intangible assets
The following can be helpful in the corporate journey to enlightenment on intangibles.
Intangibles discovery (IP audit)
First, we work closely with the client to identify and capture all the intangibles in the business, including registered rights and harder-to-find unregistered rights such as trade secrets, copyright-protected code, business process know-how and critical data. Focusing on the intangible asset types that are well understood initially and easier to find can be a quick win. In many cases (eg, for trade secrets), policy development may be required alongside education and more in-depth interview-based techniques to unearth these often truly valuable assets.
Portfolio analysis and evaluation
Next, the portfolio is analysed. In the first iteration, this requires understanding the client’s business units, revenue streams, legal entities and products. A taxonomy can then be developed and intangible assets grouped and assessed in various ways. For example, the overall company’s brand clearly underpins all products sold under that brand; the brand assets (eg, trademarks, domain names and customer databases) can also be linked to this cluster of intangible assets. At this stage, IP auditors can capture observations, rank and score the assets and, in some cases, perform more focused financial analysis to link individual or clusters of intangible assets to specific value generation within the business.
Reporting (IP dashboard)
Building on the taxonomy and assets captured above, an integrated dashboard can help users to visualise the intangible estate – perhaps with parameters such as:
- geographical distribution;
- innovation velocity;
- which business units control, manage and own the most; and
- how these relate in quantum and value to the level of investment going in.
Now, the board has the data it needs to enquire, manage and invest in these critical business assets.
Management and maintenance
Here comes the tricky part. While an organisation can go through the process of discovery, analysis and reporting as a one-time intensive project, the key to transforming the way in which it manages its intangibles is to appoint owners to the various clusters of assets, instil a sense of pride and responsibility in developing and exploiting these and deploy a regular monitoring process that can maintain the management oversight required to truly optimise the commercial outcome.
In this way, the corporate board and individual directors can better understand where 80% of their enterprise value is coming from and how best to manage it.