With the growth of governance as a cornerstone consideration in numerous firms across the broad corporate spectrum, it is overly crucial for chief executive officers, boards of directors and other governance designates to have an in-depth understanding of both the influencing factors and the consequent impacts of governance beyond just directorship and control.
If the shift from ‘standard’ to ‘triple’ bottom line focus is to be successfully achieved by the firm, governance designates have to appreciate the existence of non-monetary and non-physical (albeit identifiable) aspects within the enterprise’s ecosystem. International Accounting Standard (IAS) 38 presents a guide for corporate actors with respect to the recognition, measurement and disclosure of these non-monetary, non-physical aspects that are important due to their potential to yield economic benefit as well as to somewhat influence reputational perspectives within the operational environment.
In embarking on our internal asset investigation as a firm, our first point of focus is the two (rather recently recognised) internal assets: leadership and strategy. Leadership, in this instance, would entail all those considerations pertaining to our appropriate steering and control of the firm towards the accomplishment of its overall mission. Here, characteristics such as the competencies and skills of our selected leaders (at both board and executive levels), coupled with their experience and contributions at conceptual level, are pivotal. The prowess of our leadership with respect to influencing the implementation of agreements and resolutions, as well as the velocity of the ‘trickling-down’ of these factors to the lower levels of the organisational hierarchy, are domains on which we must place ample emphasis.
With respect to strategy in the consideration of our intangible assets, it is generally advisable for the participants of the undertaking to zone in on the decisions (and the decision-making processes) that would drive the overall realisation of our corporate vision. Rather than considering the numerous facets of our organisational strategy as simply guiding elements or directive specifics, our perspective at governance level should entail a view of these facets as assets, particularly due to their contribution to bringing about or unveiling profitable as well as value-creating results and outcomes. The plans and policies we conceive during our strategy formulation retreats, with their inherent aims, objectives, key performance indicators and results areas, are constituents of import with regard to our ‘strategy asset’ and its consequential impact on our triple-bottom line. Furthermore, our intangible asset perspective must be sure not to disregard the strategy’s impact on competitive advantage, long-term value creation, goodwill, workforce motivation and morale, as well as customer satisfaction, to name a few.
An instrumental participant in the governance spectrum is the internal auditor, who has a pivotal role to play as regards the identification of intangible assets of import and communicating the significance of these to those to whom he or she is accountable, such that pertinent decision-making processes can be enhanced. In the internal auditor’s reporting, which is usually directly to the Audit Committee of the governing board, discussions should be held regarding valuable assets such as the organisation’s trademarks, including words, symbols and logos associated with the firm’s brand, as well as their bearing on customer loyalty and on the organisation’s reputation.
Intellectual property as well as patents and rights granted exclusively to the organisation by existing authorities are vital elements of the overall intangible asset base. It is also crucial to consider any copyrights that guard against the unlawful replication of the organisation’s products and services. Such aspects are instrumental in the protection of elements that are uniquely valuable to the organisation, and it would only logically follow that governance discussions that are focused on these aspects include protective facets with the primary objective of deterring infringement.
Governance designates may also ask themselves questions about any exclusive product or service distributor rights that the firm may currently hold (and perhaps may wish to hold for the foreseeable future) so as to ensure that measures are in place for the protection thereof. Import quotas that the firm enjoys on goods that it produces, as stipulated in existing regulatory frameworks, can also be considered valuable assets that should not be ignored when governance decisions are being made.
Ultimately, a collective consideration of intangible assets is crucial in that it affords governing boards and executives a comprehensive perspective of both the positive and negative impacts on the triple bottom line – viz. people, profit and planet eventualities – as well as the inner, material corporate considerations that eventually yield the said impacts. A thorough view such as this would stimulate board and executive satisfaction with regard to governance decisions and undertakings that have been agreed upon. Furthermore, it would lay a formidable foundation for board and executive focus on future governance efforts.
The views and opinions expressed in this article are those of the author, Dumisani F. Ntini – Governance and Strategy Practitioner. Contact