Increasingly, companies have to disclose more and more information in order to meet best practices and to identify their intangible assets. Does this process reveal inside information to the public? There are executives who are now, basically, digging into things to identify their intangible assets. Is there a conflict here when trying to promote human capital, brand strategy, and internal procedures, without disclosing information?
KOSSOVSKY: No. I don’t think it’s a conflict. I think there’s a far greater challenge. The challenges have to do with authenticity, first and foremost. It’s much harder for a company to create a brand around something that isn’t there, a brand image reputation around something that isn’t actually there. So authenticity is definitely, not only required, but to be found out or to be outed, or being inauthentic can be very expensive for a company today. BP. BP is a company that has promoted its green environmental sensitivity, and it’s position sounds like a very warm and fuzzy company. It took a huge value hit because its safety concerns have not been up to the images they’re trying to convey. It’s had the major rupture in an Alaska line. It had a fairly devastating fire in Texas. And as a result of the information that’s flowed out around there, what has become apparent is that the company has not been that sensitive to its human work, it’s human resources team and so on. It has been cutting corners when it could, being consistent with the image it was trying to convey of being a very global, sensitive, and aware. Curiously BP has a very high ranking on the sustainability index, but the market cap has been whacked because the bloggers have not bought into it. So your other question is, was there inside information? Well, inside information, I think, is defined as information not generally available.

People define the business processes. People execute the processes. People, therefore, are the ones who create the underlying elements behind the brand, and they create intellectual properties that comprise the patents.

What I am asking is: is the internal process of identifying your intangible assets and insuring them throwing information out into the public realm that typically wouldn’t be or shouldn’t be because of the financial element?
KOSSOVSKY: Management wants shareholders to know that they are on top of their game. Management has few communication tools outside corporate financial statements, and as discussed, these statements tell very little about the intangible assets. The combined needs to manage the assets, mitigate risk, and communicate value to shareholders through non-conventional means.

Is a high percent of a company’s intangible assets its key people and other personnel?
KOSSOVSKY: People are central to value in the knowledge economy. If you don’t count the property, plant, and equipment, there’s nothing else in the company but the people. People define the business processes. People execute the processes. People, therefore, are the ones who create the underlying elements behind the brand, and they create intellectual properties that comprise the patents. They are the ones that execute the safety protocols and they conform to them. So it’s all about the people.

The process of insuring and financing intangible assets has a lot to do with the corporate behavior. Corporate ill behavior could lead to, say, a 30 million dollar mistake in a day. Yes?
KOSSOVSKY: Absolutely.

Tell me someone who’s good at this.
KOSSOVSKY: That’s an easy one. Warren Buffet and Berkshire Hathaway, his company is in our metric, in February of 2008 a number one intangible asset performance company on the public U.S. exchanges.

And yet, Berkshire’s not known for being a top-down management company because they buy quality companies and manage them, but… Am I wrong in thinking that? Would you describe them as a top-down management?
KOSSOVSKY: I wouldn’t because tangibly, I’m not familiar with the inner workings of Berkshire. But Berkshire has among the highest returns on equity, among the highest profitability, among the highest growth rates, among the highest price per multiple, all indicating that they know how to get more bang out of any dollar that’s in the company. Squeeze more out of a dollar out of their customer for the size of their company. Get the investor to love them more than, on average, any other company. And continue growing faster than any other company. So on the whole, they’re — all those four perimeters, they are collectively number one on all the U.S. public companies, some 5,200 companies measured.

Where’s Google?
KOSSOVSKY: They’re very high up there. Intangible assets make up about 87% of Google’s market cap while their Internet Software and Services reference group average is about 84%. Google is somewhere in the 98th percentile in terms of their intangible assets fraction and have ranked for the past two years in the number one, two or three slot in terms of intangible asset financial performance. Its deliverd to its shareholders a 23% return over the past two years while its peer reference group has returned 19.4% and the S&P500 has returned 6%.