So how does recognition serve the agenda of the CFO?
Finance is charged with maintaining the economic health of the enterprise. That requires easier access to capital in order to grow and expand. The capital markets evaluate the risk of investing in a firm through a number of lenses, but today’s evaluations sets are becoming increasingly intangible.
The value of companies has been shifting noticeably from tangible assets: bricks and mortar, to intangible assets: intellectual capital, the ability to innovate and brand reputation. These invisible assets are emerging drivers of shareholder value in the knowledge economy. Of course, an asset that is not always physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies, goodwill and brand recognition are all common calculations in today’s asset valuations.
In 1978, market value and book value were pretty much matched: book value was 95% of market value. Twenty years later, book value was just 28% of market value. New York University's Stern School of Business calculates that in the late 1990s businesses invested a staggering $1 trillion per year in intangible assets.
John Kotter and James Heskett provide the first comprehensive critical analysis of how the "culture" of a corporation powerfully influences its economic performance. In there book, Corporate Culture and Performance, they studied the relationship between culture and performance in more than 200 companies. The authors describe how shared values can profoundly enhance economic success including a higher market to book premium. Conversely companies without performance enhancing cultures faired to adapt to changing markets and environments. Their stocks where not valued as high in the capital markets.
