Do intangibles matter?
One of the things that always astonishes us when discussing intellectual property, critical information, and other intangibles is the reality that so may people don’t understand the economic impact of the intangible. There seems to be a consensus among public sector financial managers that intangible assets have no real economic value because they are, well, intangible.
This view is validated by the accepted accounting practice, explained to us in painful detail by the PCAOB, that intellectual property developed in-house has no book value. It is additionally supported by the fact that much information is never even looked at as having economic value. True, most recognize that trade secrets have value and need to be protected, but it largely stops there. Indeed, it is rare to find a company that has an audit or accounting of its intellectual property. Yes, we mean that it is rare that a company can even identify all its patents, and what is being done with them!
How do we reconcile this view with estimates from the federal government that losses from competitive intelligence, economic espionage, and theft are costing American companies $300 billion a year? We can’t. But is $300 billion really significant in an economy as large as ours?
In terms of the total percentage of our GDP, (estimated at $13,322.6 billion at the end of third quarter 2006, according to the Bureau of Economic Analysis), this loss represents 2.25 percent of our GDP. While 2.25 percent doesn’t sound material, we note that agriculture contributes 1% of our GDP.
The not-material claim is one we often hear. We have been told by corporate managers that a loss of $50 million or $100 million – even the closing down of a division – is not material to their multi-billion dollar corporations. Yet a loss of $100 million translates to 2,500 or more people out of work. The $300 billion lost equates to 7,500,000 jobs lost, which makes it a public policy issue. No doubt this is why the SEC mandates that these losses must be tracked and disclosed.
There is another compelling reason why you should care. Let us assume that you choose to lose $100 million by failing to implement an OPSEC program. If your company has 100 million shares outstanding, does a reduction of earning of a dollar a share affect your stock price? If your company has 200 million shares outstanding, does a reduction of earning of fifty cents a share affect your stock price? If your company has 400 million shares outstanding, does a reduction of earning of twenty-five cents a share affect your stock price? Considering the number of times we have seen a stock tank when it failed to “meet street expectations” by a lot less than this, we would say that the market says – screams – YES, we care about intangibles.
