Managing Intangible Assets – Practical Advice for Business Leaders – Corporate Governance

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The growing importance of intellectual assets (IA) means that their management has become a key imperative for business leaders around the world. This document provides practical guidance to help leaders effectively manage AI to drive value and mitigate risk.

What are intellectual assets?

Intellectual assets (IA) are non-monetary assets without physical substance.1 Although there is no universal definition of the term, it is widely accepted that it includes intellectual property (such as patents, copyrights and trademarks), data, research and development, staff skills, organizational skills and relationships with suppliers and customers.

Like tangible assets, AIs can be valued, bought, sold, licensed, and in some cases used as collateral.

Why is artificial intelligence important?

AI allows a company to leverage the value of its innovations and creative ideas to realize a return on investment and drive its business strategy. For example, AI support:

  • productivity, revenue and market share;

  • first-mover advantage and freedom of action;

  • market differentiation;

  • investment and access to finance;

  • collaboration and sponsorships;

  • competitor and market information; and

  • access to technology, know-how and talent.

Artificial intelligence also underpins 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 artificial intelligence has increased exponentially. It is estimated that global AI is currently worth US$74 trillion, representing a 24% increase in value from 2019, despite the economic volatility caused by the pandemic.2

Why should AI be managed?

AIs are tangible business assets that must be managed effectively to ensure they generate value for a company and its shareholders. As described by the OECD, Firms that make substantial use of intellectual assets have become the hallmark of the modern economy.3

It is therefore clearly imperative for business leaders to conscientiously manage valuable AI. This obligation is reinforced by the fiduciary duty of senior officers and directors to diligently manage everything categories of assets, intangible and tangible. Failure to comply with this obligation can lead to serious consequences, including financial penalties and, in extreme cases, imprisonment.

How can business leaders effectively manage AI?

Below are five practical tips for business leaders to manage AI effectively.

  1. Promote alignment of AI with business goals

Artificial intelligence, on its own, does not automatically generate growth and competitive advantage. Rather, they must be deliberately leveraged in alignment with a larger business strategy. Consistent with the management of other types of key assets, many companies are implementing a deliberate strategy to provide a clear roadmap for how they will effectively capture and manage AI to advance business goals.

  1. Be well informed

Business owners need to have some level of AI knowledge.

It may be prudent to access regular AI training and engage in periodic internal discussions about intangibles, innovation, and digital trends, to promote an educated and informed approach.

  1. To be informed

Managers need to understand where value is created in their business and the opportunities for growth that value presents. They must then allocate resources and implement processes to effectively capture and leverage value, along with the associated AI.

Leaders must ensure they have the necessary information flows and line of sight to hardware AI to support informed and transparent decision-making. For instance:

  • regular company reporting on agreed IA parameters; and

  • testing information through probing questions and market/trend analysis.
  1. Mitigate AI risks

With value comes risk. Managers should ensure that intangibles are integrated into enterprise risk frameworks, so that these risks can be identified, assessed and mitigated.

  1. Implement intangible governance measures and promote a culture of growth

Integrating artificial intelligence into operations and business structures is key to ensuring good asset governance and promoting a culture of growth. Measures may include:

  • the creation of a policy defining the company’s approach to intangible assets;

  • incorporate intangible assets into the company’s code of conduct;

  • align intangible assets with other company policies such as data security and cybersecurity;

  • ensure that IAs are regularly included on the agenda of management meetings;

  • appoint AI champions within the company to foster a broader understanding of the value of AI;

  • regular audits of internal IA skills and capacities; and

  • permanent review and adaptation of the company’s AI governance systems.

Conclusion

Given the financial and strategic importance of AIs, ensuring that AIs are diligently managed is critical to ensuring their growth and continuing to deliver value to a business and its stakeholders.

Implementing a tailored AI strategy gives business leaders a clear path to identify value and mitigate risk. AI governance metrics will support the development of a culture that fosters strong AI stewardship, leading to business 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://branddirectory.com/reports/gift-2021.

3. Intellectual Assets and Value Creation: Implications for Corporate Reporting’OECD, 2006, https://www.oecd.org/corporate/ca/corporategovernanceprinciples/37811196.pdfp.5.

This article first appeared in volume 24.10 of the Internet Law Bulletin.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

Helen D. Jessen