CORPORATE VALUE CREATION, INTANGIBLES, AND DISCLOSURE By - - PDF document

CORPORATE VALUE CREATION, INTANGIBLES, AND DISCLOSURE By Professor John Holland, University of Glasgow, paper presented at the Institute of Accounting and Finance , Bocconi University (Milan), Italy, for the Centenary Celebration Conference, 25th October 2002, "VALUES AND PRICES OF INTANGIBLE ASSETS: THE CONTROVERSIES THAT MATTER FOR COMPANIES AND MARKETS"

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KNOWLEDGE INTENSIVE CHANGES IN REAL MARKETS IN TECHNOLOGY, CONSUMERS, PRODUCTS EFFECTING ROLE OF KNOWLEDGE INTENSIVE INTANGIBLES IN CORPORATE VALUE CREATION ALL CREATING NEW CORPORATE DISCLOSURE AGENDA PLUS MAJOR CHANGES IN INFORMATION AND FINANCIAL MARKETS EFFECTING FUND MANAGERS, ANALYSTS AND THEIR USE OF ABOVE CORPORATE VALUE CREATION INFORMATION ON INTANGIBLES CHANGE PROCESSING AND USE PROBLEMS CHANGE QUESTIONS ASKED OF COMPANIES HENCE CHANGE COMPANIES CONCEPT OF VALUE RELEVANT INFORMATION BOTH REAL MARKET AND FINANCIAL MARKETS CHANGES COMBINE TO ALTER CORPORATE DISCLOSURE GREATER FOCUS ON INTANGIBLES ENCOURAGE USE OF VALUE CREATION STORY AND BENCHMARKS EMPHASISE REPONSIVENESS AND ADAPTABILITY IN DISCLOSURE ALL OF ABOVE HAS MAJOR IMPLICATIONS FOR REGULATION OF DISCLOSURE IN THE INTERESTS OF STOCK PRICE FORMATION AND COMPANY VALUATION

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Diagram 1 THE JOINTLY DETERMINED SUPPLY SIDE and DEMAND SIDE INFORMATION AGENDA INTERNAL COMPANY GOVERNANCE INFORMATION MARKET & STOCK +----------------------------+ +--------------------------

• & VALUE CREATION MECHANISMS¦ | MARKET INFORMATION

DEMANDS | | | ¦ | ==CONTINOUS FEEDBACK = | ¦ | & LEARNING BY COMPANIES | | HIERARCHICAL VALUE | |----------------------------- ¦ ¦ | AT FM AND ANALYST LEVELS ¦ BOARD LEVEL CREATE¦ GREATER FOCUS NEW | MOSAICS & VALUATION MODELS, ¦ MECHANISMS AND NEW ON QS | ¦ PARTICIPANTS INFO¦ INTANGIBLES WHICH | SECTORS & PORTFOLIO CONTEXT ¦ ↓↓ AGENDA INFORMATION, DEFINE | ¦ INFLUENCE 4 ¦ = & < FM AND ANALYST VALUE ¦ VALUE DRIVERS ¦ ENCOURAGE USE CHANGE| CREATION PROCESS ¦ MANAGEMENT QUALITY OF STORY & VALUE| ¦ EXECUTIVE PAY ¦ BENCHMARKS RELEVANCE| LARGER MARKET STORY LEVEL ¦ STRATEGY ¦ = < ¦ PERFORMANCE MEASURES ¦ EMPHASISE | PROBLEMS OF PROCESSING | | RESPONSIVENESS | INTANGIBLES INFORMATION, | | | CONFLICTS INTEREST, PSI. ¦ ↓↓ |--------------------------

• | | | ????

¦ WHICH DRIVE CREATE | CHANGES IN MARKET STRUCTURE, | VALUE CREATION NEW¦ | SOPHISTICATION, SENTIMENT, ¦ PROCESSES | FASHION, & MARKET STORY, ¦ HORIZONTAL INFO¦ | INCREASED WEALTH MAXIMISATION ¦ & NETWORK AGENDA | EMPHASIS, INCREASE IN ¦ | | MARKET TIME PRESSURES +----------------------------+ +--------------------------

• --+

↑↑↑ CHANGES IN REAL MARKETS, TECHNOLOGY, CONSUMERS,PRODICTS

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INCREASING SIGNIFICANCE OF KNOWLEDGE INTENSIVE PROCESSES, ASSETS OR INTANGIBLES IN CREATING CORPORATE VALUE INCREASING USE OF TECHNOLOGY

• INFORMATION

TECHNOLOGY, BIOTECHNOLOGY NOW KNOWLEDGE CREATION, ARTICULATION, PROCESSING AND LEVERAGING, A CENTRAL SURVIVAL ACTIVITY FOR MNCS EFFECTIVE EXPLOITATION OF INTELLECTUAL CAPITAL CRITICAL FACTOR IN SUSTAINING COMPETITIVE ADVANTAGE INCREASED THE ABILITY OF INNOVATORS TO CHANGE THE RULES OF COMPETITION IN GLOBAL INDUSTRIES INCREASED THE CHANCE OF FAILURE IN THOSE COMPANIES FAILING TO INVEST IN KNOWLEDGE AND IT SKILLS. 1997-2000 RADICAL IDEAS ABOUT THE EMERGENCE OF A ‘NEW ECONOMY’. THE ISSUE OF INTELLECTUAL CAPITAL AND INTANGIBLES IS NOT A NEW ONE. WHAT IS NEW IS ITS GLOBAL IMPACT. THE CHANGES IN CORPORATE VALUE CREATION PROCESSES HAVE INCREASED THE INFORMATION ASYMMETRY BETWEEN USERS AND SUPPLIERS OF EQUITY RISK CAPITAL AS WELL AS CHANGING CHARACTER / CONTENT OF INFORMATION ASYMMETRY. HENCE PROBLEMS IN CORPORATE DISCLOSURE TO FINANCIAL MARKETS CONCERNING ACCOUNTING NUMBERS, FINANCIAL STATEMENT TEXT DISCLOSURE, PUBLIC ANNOUNCEMENTS TO THE STOCK EXCHANGE AND INCREASED THE SIGNIFICANCE OF PRIVATE DISCLOSURE OF INFORMATION ESPECIALLY THE PRIVATE DIALOGUE BETWEEN COMPANIES AND SUPPLIERS OF CAPITAL ABOUT THE ROLE OF INTANGIBLES IN VALUE CREATION.

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THREE VALUE CREATION PROCESSES WITHIN CASE COMPANIES WERE MUCH EFFECTED BY THESE CHANGES THIS HAS CHANGED THE DISCLOSURE AGENDA TOWARDS INFORMATION ON THE FOLLOWING INTANGIBLES

• 1. HIERARCHICAL - GENERATED THE PURPOSE, IMPETUS, OR MOMENTUM OF

VALUE CREATION. INTANGIBLES SUCH AS THE QUALITY OF DIRECTORS, AND OF TOP MANAGEMENT COHERENCE OF STRATEGY, EFFECTIVENESS OF PAY SCHEMES. EFFECTIVENESS OF PERFORMANCE MEASURMENT SYSTEMS ALIGNEMENT OF THESE – WITH EACH OTHER & SWM .

• 2. ‘HORIZONTAL’ OR PROCESS MODEL OF INPUT PROCESS OUTPUT.

INPUT INTANGIBLES SUCH AS EFFECTIVE SUPPLIER RELATIONS, SUPPLY CHAIN MANAGEMENT SKILLS, THE QUALITY OF STAFF TRAINING, RETENTION AND RECRUITMENT, SKILLS IN IDENTIFYING OR BUYING INFORMATION ON NEW CONSUMER NEEDS, SKILLS IN INTERNALLY DISCOVERING, BUYING IN, OR COPYING NEW SCIENTIFIC AND TECHNOLOGY DEVELOPMENTS. TRANSFORMATION INTANGIBLES EFFECTIVENESS OF R&D SYSTEMS, AND OF INNOVATION FOR NEW PRODUCTS, OF TESTING PRODUCTS OF PATENTING, OUTPUT INTANGIBLES SUCH AS BRAND POWER, EFFECTIVENESS OF BRAND MANAGEMENT, SKILLS IN BUYING IN BRANDS AND BRAND MANAGEMENT SKILLS, O BROADER MARKETING AND PROMOTION SKILLS, EFFECTIVENESS OF MANAGING PATENTS AND THEIR EARNINGS, QUALITY OF DISTRIBUTION SYSTEMS, QUALITY OF CUSTOMER DISTRIBUTOR RELATIONSHIPS,

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• 3. A NETWORK VALUE CREATION PROCESS INVOLVING SHARING OF BOTH

TANGIBLE AND INTANGIBLE VALUE DRIVERS VIA SUPPLY, PRODUCTION

Diagram 2 THE INTERNAL CORPORATE GOVERNANCE (CG) & VALUE CREATION (VC) CHAIN DETERMINING THE NEW SUPPLY SIDE INFORMATION AND DISCLOSURE AGENDA COMPANY INTERNAL CG & VC CHAIN +----------------------------+ ¦ ¦ ¦ HIERARCHICAL VC ¦ KNOWLEDGE ¦ +------------+ ¦ INTENSIVE ¦ ¦BOARD CH,NEDs ¦ CHANGING DISCLOSURE AGENDA ABOUT BOARD, ¦ ¦& committees¦ ¦ CHAIRMAN (CH), NON EXECS (NEDs), === ¦ ¦ ¦ ¦ CHIEF EXECUTIVE (CE), FINANCE DIRECTOR (FD), ¦ ¦ WHO ¦ ¦ AND ABOUT DISCLOSURE QUALITY, CHANGES IN ¦ ¦¦ GOVERN ¦¦ ¦ OPPORTUNISM & OTHER TOP LEVEL ¦ ¦¦ ¦¦ ==== INTANGIBLES ¦ ¦¦ CE ¦¦ ¦ TECHNOLOGY ¦ ¦¦ FD, EDs ¦¦ ¦ ¦ +¦----------¦+ ¦ COMPETITION ¦ ¦ ¦ ALL INFLUENCE === CHANGING DISCLOSURE CONSUMERS ¦ 4 VALUE DRIVERS ¦ AGENDA ABOUT VALUE DRIVER ¦ ¦ INTANGIBLES ¦ TM-----STRATEGY ¦ ALL DRIVE ¦ QUALITY ¦ ¦ AND HOW THEY ARE ALIGNED WITH ¦ ¦ ¦ == EACH OTHER AND WEALTH CHANGES IN ¦ PAY ----- VBM ¦ MAXIMISATION AIMS ¦ SCHEMES EVA ¦ COMPANY ¦ ¦ ¦ WHICH DRIVE HORIZONTAL ¦ VALUE CREATION ¦ || & NETWORK VALUE CREATION ¦ \/ ¦ & INFORMATION ¦ +------------+ ¦ CHANGING DISLCOSURE AGENDA ¦ ¦COMPANY ¦ ¦ ABOUT STAFF TRAINING, R&D, MARKETING, AGENDA ¦ ¦VALUE ===> ===== BRANDS, SUPPLY CHAIN MANAGEMENT & OTHER VC ¦ ¦CREATION ¦ WHICH ¦ INTANGIBLES & THEIR INFERRED IMPACT ON ¦ ¦PROCESS & ¦ CREATE ¦ FINANCIAL PERFORMANCE == ¦ ¦ROLE OF ¦ ¦ ¦ ¦INTELLECTUAL¦ ¦ ¦ ¦CAPITAL ASSETS AND DISCLOSURE/OBSERVATION OF ¦ ¦ AND ======== OTHER INTANGIBLES SUCH AS ¦ ¦INTANGIBLES ¦ STRATEGIC & COMPETITIVE POSITION ¦ +------------+ ¦ & TRACK RECORD +----------------------------+

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THE STORY THE ‘STORY’ OR BUSINESS MODEL IS PRIMARY VEHICLE FOR PRIVATE DISCLOSURE STORY CONTENT = ORAL OR WRITTEN NARRATIVE ABOUT THREE VALUE CREATION PROCESSES CONNECTS KEY INTANGIBLES IN THESE PROCESSES AND THEIR IMPACT ON PERFORMANCE BUT NOT POSSIBLE TO DISCLOSE FULL TECHNICAL DETAILS OF THE ABOVE 3 VC PROCESSES IN A STORY, NOT NORMALLY TRANSMITTED DUE TO TIME, IGNORANCE, TOO COMPLEX, TOO BORING - HENCE STORY IS 'FRAGILE', SKETCHY BUT CAN REVEAL LESS SPECIFIC, SUB STORIES ABOUT R&D SUCCESS, PRODUCT INNOVATION, EXCELLENT BRAND MANAGEMENT, ETC STORY NARRATIVE CONNECTS INVISIBLE ELEMENTS VIA STORY OF INVISIBLES ==> VISIBLES ===> PERFORMANCE HOW TACIT VC ==> EXPLICIT VC ==> EFFECTS PROFITS / PRICE IN 3 VALUE CREATION PROCESSES HOW R&D = INNOVATION = PATENTS = PRODUCTS SALES TACIT KNOWLEDGE ABOUT HC, INDIVIDUALS, TEAMS, EVENTS

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IS BEST TRANSMITTED VIA SUCH FACE TO FACE 2 WAY NARRATIVE ESPECIALLY TACIT INFORMATION ABOUT TM VALUES, ATTITUDES, SENSE OF PURPOSE AND CORPORATE IDENTITY AND CULTURE SUCCESS / FAILURE OF HUMAN CAPITAL IN VC PROCESS BUT BACKED UP BY LESS SOCIAL, MORE ONE WAY MEANS, REPORTS (TEXT & NUMBERS), INTERNET, VIDEO ETC DYNAMIC ASPECTS OF STORIES STORY, REPEATED, AND TESTED IS KEY MEANS TO INFER THE PRESENCE OF INVISIBLE INTANGIBLES IN VC & THEIR EXPECTED VALUE CONTRIBUTION RELATIVE TO BENCHMARKS,

• EVENTS. ACTIONS ALSO PROVIDE EVIDENCE TO SUPPORT STORY

CONCRETE DELIVERY THRO TIME RELATIVE BENCHMARK MEASURE USEFUL CHECK AGAINST STORY BENCHMARKS + STORY = MORE INFORMATION PROBLEMS WITH STORIES ? COMPANIES AND FMS, ANALYSTS MAY HAVE DIFFERENT PERCEPTIONS AND UNDERSTANDING OF STORIES BASIS FOR CONFLICT, DISPUTE STORIES BECOMES UNCHECKED MYTHS IN SOME CASES – FAILURE OF INFORMATION MARKET

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COMPANY IN RAPID CHANGE PROCESS MAY NOT BE ABLE TO ARTICULATE STORY TO THEMSELVES – MAJOR INTERNAL AND EXTERNAL COMMUNICATION PROBLEMS ARISE MARKET STORY, ‘BIG IDEA’ OR FASHION CAN GET OUT OF CONTROL – DOT COM IGNORE SOUND COMPANY STORY

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• WHY SO USEFUL APPROACH?

A COHERENT STORY OR NARRATIVE CAN BE DELIVERED BY CREDIBLE FULLY TRANSPARENT COMMUNICATION MECHANISMS SUCH AS CREDIBLE STORY TELLER, SAME TIME, PLACE, OCCASION STORY TELLING CONTINUOUS, CUMULATIVE, CARRIED ON FROM PREVIOUS CONVERSATIONS - UNLIKE OTHER DISCLOSURE DEVICES ? INERT ? OFTEN MEET AT SAME TIME, PLACE (FMS) - ANCHOR MEMORY, STORY, START STORY, CONVERSATION WHERE LEFT OFF STORY IS 2 WAY, FLEXIBLE, CUMULATIVE MEANS TO COMMUNICATE STORY CAN BE TAILORED TO LISTENER / RECEIVER TO CURRENT CIRCUMSTANCES STORY IS 2 WAY & OPEN TO DISPUTE STORY - WHY SO USEFUL APPROACH? - ADAPT TO COMPANY CIRCUMSTANCES ADAPTABLE - DOES NOT HAVE TO BE 'ONE SIZE FITS ALL' APPROACH TO DISCLOSURE COMPANIES IN THE SAME INDUSTRIES DIFFER IN TERMS OF BOARD PROCESSES, VALUE DRIVERS, HORIZONTAL & NETWORK VC PROCESSES BUT THESE ARE COMMON CATEGORIES OF INFORMATION AND THUS PROVIDE COMMON STRUCTURE TO STORIES ACROSS SECTORS THUS CAN ADAPT / TAILOR STORY TO UNIQUE COMPANY

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CHARACTERISTICS AND CIRCUMSTANCES

Diagram 3 STORY OR BUSINESS MODEL AS MAIN DISCLOSURE MEANS

COMPANY SIDE MARKET SIDE +----------------------------+ PUBLIC & PRIVATE +----------------------+ | ¦ DISCLOSURE VIA | ¦ ¦ ORAL, TEXT, DIAGRAMS & | ¦ ¦ OBSERVED BEHAVIOUR == | ¦ BOARD LEVEL ¦ | STORY AS NOVEL ¦ MECHANISMS ¦ DISCLOSURE VIA CORPORATE | SOURCE OF SUBJECTIVE, ¦ = VALUE CREATION STORY | QUALITATIVE INFORMATION | | | ¦ ¦ AND | | | | ¦ ↓↓ ¦ NARRATIVE, | CHECKED BY MARKET ¦ INFLUENCE 4 ¦ LINKS, | AGAINST CORPORATE ¦ VALUE DRIVERS ¦ ROLE OF SPECIFIC | ACTIONS AND PROMISED ¦ INTANGIBLES, | PERFORMANCE ¦ ¦ MAKING INVISIBLE VISIBLE, | | | | | | | ¦ ¦ | ABOVE AS BASIS FOR ¦ ¦ STORY PART OF DYNAMIC | CORPORATE TRACK RECORD ¦ ↓↓ INTERCHANGE WITH MARKET | AND MARKET STATES OF ¦ WHICH DRIVE ¦ | CONFIDENCE IN COMPANY | VALUE CREATION ¦ STORY PLUS BENCHMARKS | AND ITS STORY ¦ PROCESSES =| AS ADAPTIVE INFORMATION | AND INFERRED PRESCENCE ¦ HORIZONTAL ¦ SYSTEM FOR SUBJECTIVE & | OF INTANGIBLES ¦ & NETWORK ¦ QUALITATIVE INFORMATION. | & THEIR EFFECTIVENESS ¦ | | | | | ¦ ¦ STORY CONVEYS VC | ROOTED IN MEMORY, MOSAIC +----------------------------+ WHOLENESS, LARGE PICTURE +---------------------+ BUT PROBLEMS WITH STORY

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COMPANIES HAVE MAJOR DIFFICULTIES IN UNDERSTAND HOW COMPANY INTANGIBLES INFORMATION USED AT 4 LEVELS IN INFORMATION MARKET 1.MOSAIC / VALUATION LEVEL 2.PORFOLIO / SECTOR LEVELS 3.FM / ANALYST VALUE CREATION CHAIN LEVELS, 4.MARKET STORY LEVEL, DESPITE THIS THEY DO PERCEIVE MAJOR PROBLEMS OF UNDERSTANDING/USING COMPANY INTANGIBLES INFORMATION IN THE ABOVE. PLUS PROBLEMS OF CONFLICT OF INTEREST AND OF RELEASE OF PRICE SENSTIVE INFORNMATION TO 1 TO 3 ABOVE.

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COMPANIES ALSO RECOGNISED THAT PROCESSING IN INFORMATION MARKET AT THESE FM AND ANALYST DECISION LEVELS SUBJECT TO MAJOR MARKET CHANGES WHICH THEY DO RECOGNISE, THESE INCLUDE RESTRUCTURING OF INFORMATION AND STOCK MARKETS AND INCREASED SOPHISTICATION, GLOBAL REGIONS (EU), AND GLOBALISATION INCREASING SHAREHOLDER WEALTH MAXIMISATION PRESSURES INCREASING TIME PRESSURES FROM / WITHIN MARKETS PLUS DRAMATIC CHANGES IN MARKET FASHION, SENTIMENT ESPECIALLY ABOUT LARGER MARKET STORY OR BIG IDEA ABOUT THE ROLE OF INTANGIBLES IN VALUE CREATION COMPANIES DO NO KNOW HOW ABOVE MARKET CHANGES EFFECT FM AND ANALYST USE OF COMPANY INFORMATION AT VARIOUS LEVELS BUT THEY DO EXPERIENCE A CHANGING DIET OF QUESTIONS ABOUT ROLE OF INTANGIBLES IN VALUE CREATION THIS HELP THEM UNDERSTAND THE CURRENT MARKET DEFINITION OF VALUE RELEVANT INFORMATION

14 Diagram 4 MARKET/SUPPLY SIDE CHANGE FACTORS DETERMINING THE VALUE RELEVANT DISCLOSURE AGENDA

COMPANY VALUE CREATION INFORMATION & STOCK MARKET +----------------------------+ +---------------------- ¦ | CHANGES, PROBLEMS, DEVELOPMENTS ¦ ==CONTINOUS FEEDBACK | ¦ LEARNING BY Cos, & ADAPTION | ¦ BOARD ¦ | ¦ ¦ | INTERNAL TO PARTICIPANTS at ¦ CHAIRMAN ¦ | ----------------------- ¦ ¦ NEW QUESTIONS | ¦1.MOSAIC/VALUATION LEVEL | NON EXECS | & | | ¦ | IMPACT | ¦2.PORFOLIO/SECTOR LEVELS | CHIEF EXECUTIVE | | | ¦ Disclosure ON == | |3.FM/ANALYST VC CHAIN LEVELS, | FINANCE DIRECTOR | | | ¦ == VALUE | ¦4.MARKET STORY LEVEL, | ???? | | | ¦ ¦ RELEVANCE | ¦PROBLEMS OF UNDERSTANDING/USING | | | | ¦ 4 VALUE DRIVERS ¦ | ¦COMPANY IC INFO IN ABOVE. | | | | ¦ ¦ AND | |PROBLEMS OF CONFLICT INTEREST | | | ¦ TM-----STRATEGY Disclosure | |& PSI IN 1 TO 3 ABOVE. ¦ QUALITY ¦ === == | ------------------------- ¦ ¦ ¦ ¦ IMPLICATIONS | ↑↑ | PAY ----- VBM ¦ | ¦ SCHEMES EVA ¦ FOR | WIDER MARKET ISSUES / CHANGES ¦ ¦ | | ¦ CORPORATE | ↑↑ | ¦ ==== | ¦ ¦ | INCREASING SWM EMPHASIS ¦ || HORIZONTAL ¦ DISCLOSURE | ¦ \/ ¦ | MARKET TIME PRESSURES ¦ === | ¦ AND Disclosure === | MARKET STRUCTURE & ¦ ¦ | SOHISTICATION CHANGES ¦ ¦ | ¦ NETWORK ¦ |MARKET SENTIMENT & FASHION CHANGES ¦ |& LARGER MKT IC VC STORY ¦ VALUE CREATION ¦ | ¦ ¦ | GLOBALISATION

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| ¦ | ¦ ¦ +--------------------- ¦ ¦

• CHANGING STRUCTURE MEANT CHANGING PRIORITIES

NOW FOCUS ON WHOLESALE MARKET FOR INFORMATION MARKETS THOUGH TRANSIENT WERE INTERESTED LONG TERM IN ALL COMPANY VALUE CREATION INFORMATION ON INTANGIBLES ESPECIALLY

• BROAD SET OF INTANGIBLES AS IDENTIFIED ACROSS THE CASES.
• INDIVIDUAL INTANGIBLES CRITICAL TO COMPANY AND SECTOR

AND THEIR RELATIVE BENCHMARK INDICATORS,

• THE THREE VALUE CREATION PROCESSES
• HORIZONTAL, HIERARCHICAL, NETWORK.
• THE COMPANY STORY OR NARRATIVE WAS CRITICAL
• HOW STORY RELATED TO LARGER MARKET FASHIONS OR STORIES

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• SUPPORTING BENCHMARK INFORMATION FOR KEY INTANGIBLES

IN THE COMPANY STORY,

• ABOVE WERE MEANS TO HELP FMS AND ANALYSTS OVERCOME

THE INFORMATION ASYMMETRY AND PROCESSING PROBLEMS ASSOCIATED WITH INTELLECTUAL CAPITAL (IC) OR INTANGIBLE ASSETS INFORMATION. CASE COMPANIES LEARNT THAT THEY HAD TO BUILD IN A HIGH DEGREE OF FLEXIBILITY AND RESPONSIVENESS TO INTO THEIR DISCLOSURE CONTENT AND BEHAVIOUR EXPRESSED AT TWO LEVELS, FM, ANALYST AND COMPANY LEVEL: RESPOND TO VALUATION MODEL VARIETY RECOGNISE LARGER USER SECTOR/PORTFOLIO CONTEXT, HELP OVERCOME INDIVIDUAL USER PROBLEMS WITH INTANGIBLES INFORMATION, CONTROL COMPANY BIAS FOR OPTIMISM, AVOID MANIPULATION BY ANALYSTS AND THEIR PERCEIVED CONFLICTS OF INTEREST WITH ANALYSTS,

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CORRECT PERCEIVED ANALYSTS BIASES AND ERRORS OVERALL MARKET LEVELS: (OFTEN VIA ABOVE) SATISFY SWM INFORMATION NEEDS RESPOND TO HIGHER USER SOPHISTICATION, RESPOND TO CURRENT MARKET FASHIONS SECURE CREDIBILITY FOR DISCLOSURE, IN MARKETS MATCH NEEDS OF GLOBAL MARKET PLACE FOR INFORMATION AND LOCAL VARIATIONS

Diagram 5 CHANGES IN THE CORPORATE DISCLOSURE AGENDA, BEHAVIOUR, AND INFORMATION

SYSTEMS, ARISING FROM MARKET PRESSURES

COMPANY VALUE CREATION INFORMATION & STOCK MARKET CHANGES +----------------------------+ ADAPTION OF DISCLOSURE +---------------------- ¦ ¦ = | ¦ | FOCUS ON WHOLESALE MARKET | ¦ BOARDS AND | & === | ¦ TOP MANAGEMENT |MARKET VALUE RELEVANT | ¦ ¦ INFORMATION | AT ¦ ¦ | ¦ || | FOCUS ON PRIVATE DISCLOSURE, | FUND MANAGER ¦ \/ | & = | ¦ 4 VALUE DRIVERS | STORY & BENCHMARKS | AND ¦ | | ¦ TM, STRATEGY | AS ADAPTIVE MEANS | ANALYST LEVELS | Pay, EVA | FOR BOTH SUPPLY / DEMAND SIDES | ¦ ¦ | ↑↑↑↑ ¦ || ¦ | WIDER MARKET ISSUES /CHANGES & | \/ | KEEP CORE STORY | IMPACT ON ABOVE & DISCLOSURE | | BUT ADAPT TO | & VALUE RELEVANT IMPLICATIONS ¦ | | ¦ HORIZONTAL & | FASHIONS, SENTIMENT | ¦ NETWORK VC | MARKET STORY | | | |

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| | LISTENER, MODELS | ¦ | | | | CIRCUMSTANCES | ¦ | | ¦ | LOCAL PREFERENCES | | | GLOBAL NEEDS | ¦ | | ¦ | CONTROL AND CORRECT | ¦ | | | | COMPANY OPTIMISM | ¦ | ANALYST BIAS, ERROR | ¦ | | | | ENSURE SWM RELEVANCE, | | | | ¦ | +--------------------- ¦ | | | ¦ | +----------------------------+

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Diagram 6 RELEVANT SUPPLY SIDE and DEMAND SIDE LITERATURE AND THE INFORMATION AGENDA CORPORATE VALUE INFORMATION MARKET +----------------------------+= POOR EXCHANGE OF CONCEPTS=+----------------------+ CREATION ¦ BUT USEFUL MEANS TO EXPLORE | AND STOCK MARKET ¦ LTERATURE |= CASE RESEARCH RESULTS | LITERATURE ¦ | | ¦ INTELLECTUAL CAPITAL ¦ | MARKET ¦ LITERATURE AND ¦ NEW LANGUAGE OF | BASED ¦ BROAD CATEGORIES OF = INTANGIBLES & PRECISE | ACCOUNTING ¦ INTANGIBLES ¦ DISCLOSURE DEFINITION RESEARCH, ¦ ¦ AND | ON EVENTS, ¦ ¦ = & | ON CHANNELS ¦ STRATEGY LITERATURE ¦ IDENTIFI-| ¦ AND THE ROLE OF STRUCTURE OF -CATION | ¦ INTANGIBLES ¦ VALUE CREATION OF | EXPECTED VALUE ¦ IN ¦ PROCESSES, = | OF INFORMATION ¦ CORPORATE ¦ GENERAL ROLE OF VALUE | ¦ VALUE INTANGIBLES IN VC RELEVANT ¦ CREATION ¦ INFORMATION | ¦ FORMAL & NEW AND | AVOIDANCE OF ¦ = CONCEPTS OF DISCLOSURE SURPRISE ¦ ¦ COMPANY SIDE CHANNELS | ¦ ¦ INFORMATION INFORMATIVENESS ¦ AGENDA | ¦ ¦ | +----------------------------+ +---------------------+

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NEW DISCLOSURE REGULATION – BASED ON ?

• COMPANIES DESCRIBING THEIR VALUE CREATION STORY
• HIERARCHICAL VALUE CREATION, FOLLOWED BY HORIZONTAL VALUE

CREATION, THEN NETWORK VALUE CREATION PROCESS

• THIS WOULD PROVIDE A STABLE AND SOLID STRUCTURE TO EACH STORY
• AND ALLOW COMPARISONS TO BE MADE WITHIN A SECTOR AND OVER TIME.
• QUALITATIVE INFORMATION, & WIDER CONTEXTUAL INFORMATION EMBEDDED

IN STORY WOULD BE DISCLOSED IN A SYSTEMATIC AND STRUCTURED WAY

• COMPANIES DESCRIBING THEIR NOVEL VARIANTS OF COMMON CATEGORIES

OF INTANGIBLES WITHIN EACH SUB VALUE CREATION PROCESS,

• AND HOW THESE INTANGIBLES WERE CONNECTED IN EACH SUB VALUE

CREATION PROCESS AND ACROSS THE LARGER PROCESS.

• HOW

THEY FORMED UNIQUE KNOWLEDGE INTENSIVE COMPETITIVE ADVANTAGES FOR THE COMPANY

• HOW MAJOR BENCHMARK INDICATORS WERE USED INTERNALLY AND

EXTERNALLY TO MEASURE THESE KEY ADVANTAGES,

• THE BENCHMARK INDICATORS SHOULD BE REVEALED AT THE APPROPRIATE

POINT WITHIN THE CORPORATE STORY OF HIERARCHICAL, HORIZONTAL AND NETWORK PROCESSES.

• THEY SHOULD NOT BE DISCLOSED AS AN AD HOC LIST UNCONNECTED TO THE

VALUE CREATION STORY.

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• DIAGRAMS, FLOWCHARTS, PICTURES AND NUMBERS CAN BE USED TO

SUPPORT THE STORYLINE.

• COMPANIES REVEAL QUESTIONS ASKED OF THEM
• COMPANIES REVEAL HOW ADAPT CORE STORY AND WHY
• COMPANY REVEAL HOW DEVELOP RESPONSIVENESS

ADD ABOVE TO EXISTING FINANCIAL STATEMENTS SIMILAR TO PROPOSAL IN UK, AND US BUT MORE SYSTEMATIC, COMPREHENSIVE LESS AD HOC LIST COULD ALSO USE STRATEGY, INTELLECTUAL CAPITAL LITERATURE TO PROVIDE MORE STRUCTURE TO ABOVE ALSO USE MARKET BASED ACOUNTING RESEARCH LITERATURE TO HELP SHARPEN MARKET CONCEPTS OF VALUE RELEVANT INFORMATION BARUCH LEV AND THE VALUE CHAIN SCOREBOARD:??? SIMILAR TO HORIZONTAL VALUE CREATION BUT THIS ALSO IDENTIFIES HIERARCHICAL, PLUS NETWORK AND ROLE OF STORY AND OF REPONSIVENESS BUT CLEAR NEED TO GO BEYOND LIST OF QUANTITATIVE BENCHMARK INDICATORS SET IN HORIZONTAL PROCESS

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NEED TO SEE THE INFORMATION IN WIDER EXPLANATORY CONTEXT