by Mary Adams ~ July 21, 2008.
Permalink | Filed under: Hybrid Vigor, Valuing Intangibles.
More of my observations on the U.S. National Academies conference on Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth and the presentations made that day.
This was the discussion of the day closest to my experience and practice so I was especially interested in these presentations.
I recommend the discussions by Laurie Bassi, McBassi & Company, and James Malackowski, Ocean Tomo, whose companies are encouraging market development for intangibles. McBassi offered data on the value of investment in human capital. Malackowski’s firm made its name by developing public auctions of patents and is now developing investment units tied to licensing rights. The work of companies like this will provide an important validation to markets and managers of the value of intangibles in business.
Baruch Lev of New York University’s Stern School, reported that “shares of intangibles-intensive companies are systematically undervalued, causing excessive cost of capital as well as suboptimal investment and growth.” Lev rejects the value of many intangibles indicators and advocates “structured input-output information on performance of the major drivers of enterprise value.” The challenge to this is, as Lev admits, that this type of analysis would need to be done industry by industry and, as such, would take years to develop.
Ron Bossio, Financial Accounting Standards Board (FASB), explained that FASB’s priorities are around international convergence and joint projects with the IASB and completion of codification of US GAAP. As previously reported late in 2007, FASB will not work directly on the issue of intangibles. He ended the discussion with the prediction that the challenge of intangibles disclosure will not be solved for the foreseeable future.
I asked Lev, Bossio and the others on the panel about cost. In my own work, I keep coming back to cost and I am beginning to see it as the potential answer to this dilemma. Companies are already spending millions on intangibles. Accountants know how to count costs — they are counting the cost (I would call it investment) in intangibles and putting most of it on the income statement. Why don’t we start creating management reports about intangibles spending and use the information for greater transparency and learning? Our economy has already changed. We are already in an intangibles-heavy economy. We cannot afford to ignore a powerful information source in the form of annual investment data in intangibles.