FEI: CFO’s and Intangibles

December, 2006. As part of the celebration of the 75th anniversary of Financial Executives International, the Editor of Financial Executives wrote an overview entitled, “What Does the Future Hold for Finance and CFO’s?” that included a section on intellectual capital, featuring Trek Principal Mary Adams:

“The greatest change that has to occur in the finance role involves the intangible assets of the corporation. As we have shifted to a knowledge-based economy, the drivers of competitive advantage are resources like people, processes, knowledge, external networks and brands. Today, only 20 percent of corporate value can be explained through the book value of tangible assets. The rest is in intangible, intellectual capital. The implications of this are widespread.

Financial reporting doesn’t give an accurate picture of a corporation’s productive “assets” (as was the original intention of the balance sheet). New approaches to performance measurement need to be adopted to help management, and new approaches to assessing the strength, outlook and risk of the corporate portfolio of productive resources also need to adopted.

Failure to adopt new approaches will relegate financial executives to be truly bean counters, in charge of the income statement but having little input into the future capacity of the organization.”

The full article includes thoughts from leading CFO’s and academics (you have to register to read it, but it is free).