The growing importance of intellectual assets (IA), means that their management has become a key imperative for business leaders globally. This paper provides practical tips to assist leaders effectively manage IAs to drive value and mitigate risk.
What are intellectual assets?
Intellectual assets (IA) are non-monetary assets without physical substance.1 Whilst there is not a universal definition of the term, it is widely accepted as including intellectual property (such as patents, copyright and trade marks), data, research and development, staff skills, organisational competencies, and relationships with suppliers and customers.
Like tangible assets, IA can be valued, bought, sold, licensed and, in some cases, used as security.
Why are IA important?
IA enable a business to leverage the value of its innovations and creative ideas to realise a return on investment and drive commercial strategy. For example, IA support:
- productivity, revenues and market share;
- first mover advantage and freedom to operate;
- market differentiation;
- investment and access to funding;
- collaboration and sponsorships;
- competitor and market intelligence; and
- access to technology, know-how and talent.
IA also underpin emerging technologies including cloud computing, data analytics, artificial intelligence, robotics, augmented and virtual reality.
With the rise of the digital economy, the economic value of IA has exponentially increased. It is estimated that global IA are currently worth US$74 trillion, representing a 24% increase in value from 2019, despite the economic volatility caused by the pandemic.2
Why must IA be managed?
IA are material business assets which must be effectively managed to ensure they drive value for a business and its shareholders. As described by the OECD, "Companies that make substantial use of intellectual assets have become the hallmark of the modern economy".3
There is therefore a clear imperative for business leaders to conscientiously manage valuable AI. This obligation is reinforced by the fiduciary duty of senior leaders and board directors to diligently manage all classes of assets, intangibles as well as tangibles. Failing to comply with this duty may result in serious consequences including financial penalties and, in extreme cases, jail terms.
How can business leaders effectively manage IA?
Below are five practical tips for business leaders to effectively manage IA.
- Promote alignment of IA with business objectives
IA, on their own, do not automatically generate growth and competitive advantage. Rather, they must be deliberately leveraged in alignment with broader business strategy. Consistent with the management of other key asset types, many businesses implement a deliberate strategy to provide a clear roadmap on how they will effectively capture and manage IA to promote business objectives.
- Be knowledgeable
Business leaders should have some level of IA literacy.
It may be prudent to access regular IA training and engage in periodic internal discussions about intangibles, innovation and digital trends, to promote an educated and informed approach.
- Be informed
Managers should understand where value is being created in their business and the growth opportunities that value presents. They should then allocate resources and implement processes to effectively capture and leverage the value, as well as associated IA.
Leaders should ensure they have the necessary information flows and line of sight to material IA to support informed, transparent decision making. For example:
- regular reporting from the business on agreed IA metrics; and
- testing of information through probing questions and market/trend analysis.
- Mitigate IA related risks
With value, comes risk. Managers should ensure that intangibles are integrated into the business' risk frameworks, so that these risks can be identified, assessed and mitigated.
- Implement intangible governance measures and promote growth culture
Incorporating IA into business operations and structures is key to ensuring good asset governance, and promoting a growth culture. Measures may include:
- creating a policy setting out the business' approach to intangibles;
- incorporating intangibles in the business' code of conduct;
- aligning intangibles to other company policies such as data and cyber security;
- ensuring that IA are regularly included on the agenda of management meetings;
- appointing IA champions within the business to support a broader understanding of the value IA;
- regular audits of internal IA skills and capabilities; and
- ongoing review and adaptation of the business' IA governance measures.
Conclusion
Given the financial and strategic importance of IAs, it is critical to ensure that IAs are diligently managed to ensure they grow and continue to deliver value to a business and its stakeholders.
Implementing a tailored IA strategy provides a clear pathway for business leaders to identify value and mitigate risks. IA governance measures will support development of a culture that fosters strong IA management, leading to commercial growth and competitive advantage.
Footnotes
1. International Accounting Standard (IAS) 38 Intangible Assets, https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/.
2. Brand Finance Global Intangible Finance Tracker (GIFT) 2021 Report –https://brandirectory.com/reports/gift-2021.
3. Intellectual Assets and Value Creation: implications for Corporate Reporting', OECD, 2006, https://www.oecd.org/corporate/ca/corporategovernanceprinciples/37811196.pdf, p.5.
This article was first published in the Internet Law Bulletin volume 24.10.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
