May 2021

Setting the
New Agenda
for CFOs
Understanding the roleof Intangibles in Value Creation
World Intellectual Capital/Assets Initiative

Copyright© May 2021 by WICI, All rights reserved.
Permission is granted to make copies of this work to achieve maximum exposure provided
that each copy bears the following credit line:“Copyright© May 2021 by World Intellectual Capital/Assets Initiative. All rights reserved.
Used with permission of World Intellectual Capital/Assets Initiative. Permission is granted
to make copies of this work to achieve maximum exposure.”Table of Contents
Foreword

2

Preface3

Finding Value in Changing Landscape

4

Delivering Value - managing intangibles

5

Examples		
Alibaba
		Microsoft
		Lego		 Philips
		Apple

5
5
6
7
8
9

Communicating value creation from Intangibles

10

Examples		
Daiwa House Group		 Ajinomoto Group
		MS&AD		Samsung		Unilever

12
12
13
13
15
16

Experience & Cases

17

Interview of CFOs of
		 Natura & Co.
		 Stafer Italy
		 3M Japan

17
20
22

Public sector support & investor evaluation

24

Design Sheet (Japan)

24

BNDES Approach to Evaluating Intangibles

26

Appendix

33

Setting the New Agenda for CFOs • WICI 1

Foreword
We welcome this report and the insights it provides about the current state of reporting on
intangibles. Intangibles account for an increasing share of value creation and it is therefore
critical that they are properly understood, measured, integrated into decision-making andreported upon. It is also important that capital providers understand how businesses aremanaging their intangible assets for sustainable value creation. In our view, not enoughattention is currently given to the role of intangibles in contributing to, or eroding, value.
This guide will be an important step in prompting that discussion.
The Value Reporting Foundation, to be formed from the intended merger between the IIRC
and SASB, commends WICI for producing this overview of current practice as well as its
recommendations for how reporting on intangibles can be improved to provide decisionuseful information for both preparers and users. We are clearly at the innovation stage interms of best practice and we encourage more work to increase both awareness and quality
for the future.
The examples included in the report illustrate the many relevant dimensions of intangible
value, from how banks can use information on intangibles to support lending decisions to
new management control perspectives and investors’ analyses and decision-making.
We plan to work with WICI to continue developing the basis for meaningful reporting ofintangibles to assist corporate measurement, valuation and improved transparency throughappropriate narrative and quantitative disclosures. This work is essential to achieving highquality and comprehensive corporate reporting which promotes more efficient and productive
capital allocation and sustainable business performance.
CHARLES TILLEY
CEO, International Integrated Reporting Council
JANINE GUILLOT
CEO, Sustainability Accounting Standards Board

2 WICI • Setting the New Agenda for CFOs

Preface
It is increasingly recognized that intangibles play a significant role in creating enterprisevalue. The balance sheet remains vital but recognized tangible assets are diminishingin their contribution to the overall value of the business. Accordingly, how to identify,
manage, and enhance intangibles is a key issue for corporate management. The EU’s new
proposal, issued in April, on a Directive on Sustainability Reporting requires companies toprovide information on intangibles. This signals a clear recognition of the importance ofintangibles to corporate management and value creation. Successful businesses understandthe importance of managing their relationships with stakeholders to the ability of thebusiness model to generate and capture value. At present there is little guidance for CFOs
on how to manage intangibles and financial reporting only captures in intangibles where
there is a transaction such as an acquisition. In recent times we have seen how intangibles
can be subject to significant write-downs creating financial instability in the market.
Accordingly, WICI decided that it is was important to start a conversation with CFOs on
the management of intangibles. This paper is a first step in WICI’s work to stimulate adebate on how companies can improve how they understand and respond to the drivers ofenterprise value which impact overall enterprise value.
There is significant interest amongst investors and other stakeholders on a company’ssustainability performance and significant developments are underway to enhance andintegrate sustainability performance into reporting to stakeholders. Unfortunately,
sustainability performance is sometimes conflated with intangibles as both representing
drivers of enterprise value. Whilst sustainability performance has a direct link to enterprisevalue, intangibles represent the value to be derived from appropriately managing stakeholder
relationships and innovation.
WICI believes that this document can serve as important marker for shifting the debate
beyond the recognition and measurement to intangibles, to helping CFOs understand thenature of these resources and the critical role they play in driving enterprise value. The
practical examples set out in this document provide some initial insights on how companies
approach the management of their intangibles and importantly communication information
to stakeholders about the role they play in overall enterprise value.
TAKAYUKI SUMITA
Chair, WICI Global

Setting the New Agenda for CFOs • WICI 3

Finding value in a changing
business landscape
Traditionally, the resources of business were things you could touch: machines, land,buildings; then vehicles, and later computers. But business processes, relationships andmodels are evolving. Modern businesses invest more and more into intangible assets - suchas research and innovation, branding, organizational design, know-how, relationships.
These non-physical resources, either alone or in conjunction with other tangible or intangible
resources, can generate a positive or a negative effect on the value of the organization in
the short, medium and long term.
What is new about today’s economy? It is not the role of ideas themselves. The technologies we takefor granted - the wheel, fired pottery, the plough or the steam engine - were once brilliant new ideas.
What is new about today’s economy is that many of our best ideas remain disembodied. The idea is
indeed valuable, but it does not take physical form. This changes almost everything.
Martin Wolf, Chief Economics Commentator, Financial Times

Characteristics of intangibles• Longer term - intangibles can last longer than tangibles as a source of value creation.
• Dynamic - intangible value drivers can be sensitive to changes in sentiment and perspective.
• Entity specific - combination of intangibles for one company to create value maybe quite
unique and hard to replicate.
• Scalable - e.g. potential to license across the world, across a vast range of products.
• Synergies - e.g. combining intangibles - algorithms, brand, highly skilled workers.
• Capable of driving sustainability - corporate responsibility and sustainability have been
identified as affecting a range of intangible assets.

4 WICI • Setting the New Agenda for CFOs

Delivering value managing intangibles
1. Understand and manage your unique value creation mechanism, identify material andemerging intangibles and how those intangibles connect and combine to create value,
recognizing that materiality is derived from a combination of financial and social/environmental considerations.

2. Identifying, utilizing, combining, strengthening, maintaining or investing into intangibles
to create value.

3. Explore connections to existing disciplines and practices - integrate in key performanceindicators and targets, identify standards/frameworks used to support objectives,budgeting and forecasting to allocate resources and plan.

ExamplesAlibaba (digital economy)

To achieve long-term sustainable growth, you need the right balance among system,
people and culture...
Jack Ma, Co-founder and executive chairman of the Alibaba Group

Setting the New Agenda for CFOs • WICI 5

Microsoft (IoT, cloud, AI etc.)

It took time for the investment world to embrace companies built on intangible assets. In theearly days of Microsoft, I felt like I was explaining something completely foreign to people. Our
business plan involved a different way of looking at assets than investors were used to. They
couldn’t imagine what returns we would generate over the long term. The idea today that anyone
would need to be pitched on why software is a legitimate investment seems unimaginable, but a
lot has changed since the 1980s. It’s time the way we think about the economy does, too.
Bill Gates, principal founder of Microsoft Corporation

6 WICI • Setting the New Agenda for CFOs

Lego (brand & marketing)

In many companies, the chief marketing officer is only the marketing. I don’t just do marketing.
You know that’s actually only one small portion of the job. What my team does is the whole
product portfolio, product experience, communication, content, social channels. So it’s reallycore to what we put out there ….
Julia Goldin - Chief Marketing Officer, Lego

Setting the New Agenda for CFOs • WICI 7

Phillips (innovation)It’s almost impossible to talk about Philips without talking about innovation. From Gerard,
Anton and Frederick’s humble beginnings in Eindhoven - discovering methods to mass produce
the light bulb and bring light into the homes of Europe - through tens of thousands of patents,
the urge to create the new and predict the future is part of the company’s DNA.

8 WICI • Setting the New Agenda for CFOs

Apple (ideas)

Innovation… is the people you have, how you’re led...
Steve Jobs, former CEO, Apple

Our capital, our equity, is our ideas…
Jonny Ive, Chief Design Officer, Apple

Setting the New Agenda for CFOs • WICI 9

Communicating value creationfrom intangibles
Why?
• Supporting and evidencing strategic positioning - performance, growth opportunities,
efficiencies, resilience - risk anticipation, mitigation adaptation capacity.
• Building trust, confidence and relationships with key stakeholders.
• Differentiating from competitors.
• Demonstrating progress on existing commitments and values.

What?
• Unique value creation mechanism - business model, story.
• Strategic intangible assets - key factors of the value creation mechanism.
• Strategy, Mission, Vision, Values etc.
• Strategy for the future business, development and utilization of intangible assets.
• Governance - management approach, qualities and diversity of directors, remuneration
system, etc.
• Risks and opportunities related to intangibles e.g. social/human/intellectual - recruitment& retention, training & development, skills, intellectual property, innovation capacity.
• Business environment - e.g. size of the industry/market, company’s positioning, importantcompetitors etc.
For details see
http://www.wici-global.com/kpis

10 WICI • Setting the New Agenda for CFOs

How?
1. Outline of activities and value creation model - value proposition, the main products/
services offered to the markets and collaboration and/or competition with other entities.

2. Intangibles and value creation from past-to-present - strategy to create value; the way
activities are planned and implemented in order to achieve the organization’s strategy;
an organization’s strengths, which include both intangibles and their relationship totangible and financial assets, described as the key factor in the company-specific value
creation mechanism; performance generated from the utilization and interaction ofstrategic intangible and tangible resources.

3. Intangibles and value creation from present-to-future - commitment to continuous
improvement; establishment of feedback model from stakeholders and shareholders;strategy for value creation in the future, as well as the business model, activities and key
intangibles utilized; risks, opportunities or uncertainties that may damage or improvestrategic resources including intangibles.
For details see
http://www.wici-global.com/framework

Setting the New Agenda for CFOs • WICI 11

Examples

Daiwa House Group

12 WICI • Setting the New Agenda for CFOs

Ajinomoto Group

MS&AD Approach to Internal Reserves

Setting the New Agenda for CFOs • WICI 13

MS&AD KPIs and Sustainable Growth

14 WICI • Setting the New Agenda for CFOs

Samsung (Research & Development)

Setting the New Agenda for CFOs • WICI 15

Unilever (Brands & Innovation)

16 WICI • Setting the New Agenda for CFOs

Experience & Cases
Natura & Co CFO: José Antonio Filippoa) As a CFO, how do you describe the relevance ofmanaging intangible capitals (such as humanresources, innovation, relationship, etc.)?
JF: It all starts with human capital. Companies need to choose paths that allow for constantand positive organizational transformation. By doing that, they can reach the maximum
potential of working through collaborative and agile networks. This type of evolution
is only possible if the potential of each individual is liberated, helping to achieve selfrealization.
	Consumers and their habits have changed radically, and the same thing happens - and willcontinue to happen - to those who work in companies. People management should seek
to provide an environment that presents challenges, as well as unique and mobilizing
experiences, based on a collective purpose. In parallel, relations with suppliers andcustomers have to be based on transparency and trust, so that they can perpetuate andexpand.
	Another fundamental factor for creating value is innovation, as well as the wholeecosystem necessary for its viability (human resources, infrastructure, partnerships,etc.). There is a strong correlation between the level of investment in innovation andgrowth capacity, and it is necessary to achieve a minimum scale for this relationshipto materialize - which varies according to each market and the different categories of
products offered by the company. If the company delivers top-level products and services
and effectively manages the relationship with its stakeholders, it will certainly have apositive return on its image, which can be expressed, for example, through its brand,
the company’s most evident intangible asset. Consequently, it is extremely important
to make good management of intellectual property - in this context, in addition to thebrand, there are other rights which, when strategically managed, create competitive
advantages for the company.

Setting the New Agenda for CFOs • WICI 17b) C an you give some concrete examples of theadvantages of managing intangible capitals
strategically?
JF: In the case of Natura, investment in product innovation is around 2.3% of net revenue,
and this investment has had a strong impact on results; for example, approximately 60%
of revenues from 2019 come from new products released in the last 24 months. It is
important to mention that about one third of the portfolio is renewed annually, due tothe accelerated dynamics of the market in which the company operates.
	Additionally, managing our human resources effectively has obvious advantages. Knowing
the essence of the company - which, in Natura’s case, is expressed through the concept
of “wellbeing well” - and aligning purposes between the company and its employees
provide increasing autonomy and protagonism. Knowledge flows in a multilateral way andcollective intelligence is strengthened. From this balanced relationship, decentralized
initiatives can accelerate value creation. An example of what we are living today at
Natura is the use of agile methodology. Traditionally, it has been applied in technologyrelated industries, but today we have dozens of agile teams in areas such as Human
Resources, Marketing, Internationalization and Innovation. This new way of operating
has already brought very important results, such as reduced time to launch new productsin the market (and the costs involved in this process).
	Finally, the protection of innovative technologies through patents and the practicalapplication of these rights by the company prevent competitors from exploiting, in
an inappropriate and unauthorized way, the results of our investments in research anddevelopment. Thanks to a diligent management, the “Natura” brand has since 2005 beenrecognized by the INPI (National Institute of Industrial Property) as a highly renowned
brand, guaranteeing that the company has the rights to exclusive use in Brazil, in all
product classes and services.

18 WICI • Setting the New Agenda for CFOsc) As CFO, what are the biggest difficulties /challenges in managing intangibles in youropinion?
JF: An important challenge for companies that are strengthening the internationalizationof their brand and their businesses - like Natura - refers to dealing with intellectual
property and anticipating possible conflicts between national and international laws these are situations that may, for example, create difficulties for innovation.
	Regarding people management, the challenge is to coordinate the constant process oforganizational transformation and keep the employee as the main character. We cannot
consider the company’s interests exclusively, but we also have to focus on our employees’
needs, which are increasingly individualized. Human Resources departments will not do
this on their own, but they must lead this journey. In short, its mission is to meet thecompany’s expectations in a harmonious way considering the space employees choose tooccupy.
	Finally, in the case of innovation, the biggest challenge is to identify the optimal level ofinvestment, seeking a balance between short and long terms, without ever compromisingcompetitiveness in relation to market peers.

d) What message would you leave to other CFOs,
from smaller or larger companies, about managing
intangibles?
JF: In an increasingly integrated and globalized market, companies that do not invest ininnovation are bound to stagnate and reduce their competitiveness (this is true forcompanies of any size and, at the macro level, it is true even for countries). Anotherfundamental issue is the importance of fostering a new leadership role, precisely toface the contemporary transformation in the profile and needs of employees. Managers
must behave as “people developers” in order to make room for growth and to suppress
everything that disrupts the daily lives of teams. This means counting less on commandand control; instead, it is necessary to stimulate autonomy and courage to innovate.
	Finally, the company must always make sure that innovation and brand achievements
are not endangered or misappropriated by competitors. Even if the company, due to its
size, is unable to set up a whole department for intellectual property management, it isimportant to have specialized legal advice.

Setting the New Agenda for CFOs • WICI 19

Andrea Ragazzini CFO Stafer Italya) Relevance of Intangibles for a CFO?
AR: Nowadays, on the international scene, the fundamental role that intangible capitals
hold for the evolution of organizational systems is becoming increasingly evident. Smalland medium enterprises represent a significant expression of this system and, due totheir structural configuration, the management of intangible capitals constitutes oneof the crucial points for their ability to create value in the short, medium and longterm. In this context, the Chief Financial Officer represents one of the most importantroles for company development and at the same time, the progressive approach to the
management of intangibles represents a concrete step. The importance of intangible
capitals for the Chief Financial Officer is determined by the fact that understanding
the intangible capitals means knowing and monitoring the main levers of operationaland strategic corporate development. Supporting the Governance system throughstrategic tools such as the Balanced Scorecard and the related indicators, the quality,
environment and safety management systems, as well as the strategic positioning linked
to objective measurements means offering the company an integrated vision of all thevariables that determine the future of the organization. The thought that supports thisvision and that represents a real methodology rests on the reflection that companies,
and organizations in general, are real communities and therefore report a multivariate
series of intangible dimensions to be known for their economic sustainability , socialand environmental over time. It is therefore relevant that the integrated vision of theorganizational systems starts from the functional places, inside the company, delegatedto represent and give expression to the corporate system in its integrity and the Chief
Financial Officer, especially in small and medium enterprises, represents one of thesefundamental elements.

b) Concrete advantages of managing intangibles?
AR: In order to understand the advantages brought about by the management of intangible
capitals it is necessary to make explicit the fact that they represent the most important
assets for the value creation process of the company. For the economic, social andenvironmental sustainability, companies need to know in depth the dimension of human,organizational and relational capital, since they represent the bases to create strategicplans in line with their own identity and operational plans in order to implement theplans themselves. Consequently, it is clear that the main advantages brought by the
management of intangibles are the greater awareness of the management systems,
the creation of value in the organization, and the real possibility to manage of thesevariables. Nowadays social systems, of which companies are part, turn their gaze towards
a concept of extended sustainability, which contemplates in depth the set of capitals
that men need for their own evolution and posterity towards future generations.

20 WICI • Setting the New Agenda for CFOsc) Difficulties, challenges you see as a CFO in
managing intangibles?
AR: Acting and making decisions within organizations, integrating the dimension of
intangible capitals into one’s own assessments, involves a real change not only in theway of thinking, but also in the way of acting. This means that a Chief Financial Officer,
like the other people present within the organizations, faces a challenge, or a change,
which starts from the values that underlie the creation of value for the company andthat ends with business management practices in a sustainable perspective. The Chief
Financial Officer, being one of the leading figures in companies, especially small one,
represents one of the key roles for the creation of a solid cultural base, within thecompany, capable of bringing the business community towards a real path of value
creation over time, therefore not only linked to the financial dimension but also to thesocial and environmental dimension. In fact, companies need people aligned towards anobjective and a value system oriented towards a shared concept of community. All of thisis part of the “intangible” elements that support all the organization’s possibilities ofrealization and make the difference between a territorial and economic system capableof creating value.

d) A final message to other CFO’s?
AR: The economic world as we know it is about to experience a change that starts frompeople’s cultural system and their reference value system. Taking on the role of Chief
Financial Officer carries with it a responsibility, not only towards the company but
also towards the people who compose it. The concept of economic and financial
dimension in the world is rapidly evolving; corporate balance sheets, for several years
now, are beginning to embody these principles, sometimes reporting impact analysisof the organization’s action, sometimes describing its value creation system, becoming
concrete opportunities for all integrated reporting organizations of their own reality.
What remains of all this is essentially a concept, namely that companies are complex
and multivariate entities, formed by relationships between transversally crossing plans,actions and resources. For this reason, it becomes important that in the first place
the Chief Financial Officers approach this reality, expanding their vision and therefore
determining a real step forward for the development of companies, people and therefore
society.

Setting the New Agenda for CFOs • WICI 21

Mr. Kon CFO of 3M Japana) As a CFO, how do you describe the relevance ofmanaging intangible capitals (such as humanresources, innovation, relationship, etc.)?
MK: Intellectual capital and human capital are the most important intangible assets for
CFO to manage the most innovative company, like 3M and 3M’s subsidiaries including
Japan. Our company’s value driver is to connect between voice of customers and ourtechnologies in our technology plat form. The technology plat form is a kind of data baseof specific technologies consisted of four categories; Materials, Processing, Capabilities
and Applications. Even though 3M is chemical companies, those categories is not limited
to chemical technologies, but to a manufacturing process, the combination of different
technologies, and other areas. Our innovative business model encourages engineers
to work together and share ideas and knowledge each other to create new things by
putting together some of technologies. Basically, our innovative products came fromthe several existing technologies, with the different combination of them, and it didn’t
from one big destructive technology. Therefore, maintaining the technology plat form is
the key action to grasp the whole new product implementation process which will create
future cash flow.
	3M’s other important factor to maintain the most innovative company is respectful
culture, with HR policy; the dignity of human being. Employees must be excited andengaged to deliver excellent results. With that, CFO needs to pay attention on thelevel of moral and vitality of employees even though those factors can’t be measured
by monetary index. Management and leaders of a company would be more critical toact as a model of a employees. 3M defines the competency of leaders; 3M Leadershipbehaviors, which consists of six categories; Play to win, Innovate, Faster Collaborationand teamwork, Prioritize & Execute, Develop Others & Self, and Act with Integrity &transparency. Leaders in 3M are evaluated based on 3M Leadership behaviors about thehalf of their performance.

b) C an you give some concrete examples of theadvantages of managing intangible capitals
strategically?
MK: Financial result is history, and nothing happened from historical data. CFO should work
closely with business leaders to accomplish the responsibility of accountability. For
that purpose, CFO should look at the whole business process with business leaders fromtime frame prospect. 3M’s value driver is to launch new products continuously, which

22 WICI • Setting the New Agenda for CFOs

is the most important source of future cash flow. We should not treat research anddevelopment operation as a cost center, but a profit center.
	Pricing is always the critical factor to keep margin appropriately. CFO sometime makes a
mistake to keep the price level by pressuring Sales and Marketing operation, which could
be difficult to maintain the price level by negotiating with customers. Value proposition
must be the only way to keep appropriate marine level, which will be accomplishedthrough new product implementation.
	3M has been managing laboratory’s activities by watching the gross margin % instead ofvolume, resulting in higher profitability than the industrial average.

c) As CFO, what are the biggest difficulties / challenges
in managing intangibles in your opinion?
MK: CFO is always asked to explain the performance through numeric measures, KPIs, andsome of intangibles are not appropriate showing the real performance though accounting
indexes. In addition, not all activities in intangibles will be converted into cash evenin the future. In addition, even though it would generate cash in the future, it could
be indirect impact. With the defined responsibility, which is not accurate in the current
circumstance, CFO is treated as a killer of new idea and opportunity in a company. CFO
must initiate actions to change the situation by promoting the new responsibility of CFO
and Finance organization.

d) What message would you leave to other CFOs,
from smaller or larger companies, about managing
intangibles?
MK: Social value is more important than financial value in coming ages, in which a company
should place vision, mission and value. A company should describe the future suitablesituation of the society as vision in which a company is driving business. Mission mustdescribe a company’s responsibility with the output of products and service to realize
the vision. Finally, value is the model of behaviors by which employees should act. CFO
is the most critical position in the management team in terms of relationship with other
CxO and its responsibility. Therefore, CFO should change by yourself to fit you to thesocial requirement, and intangibles must have been the main category for CFO’s role
than tangible factors.

Setting the New Agenda for CFOs • WICI 23

Public sector support & investor
evaluation
Design Sheet (Japan)
The Corporation Management Design Sheet is produced and publicly released in June 2018
by Japan’s Cabinet Office Intellectual Property Strategy Headquarters as a tool to design
management by appropriately evaluating a role of intellectual properties (IPs) in the corporate
value creating mechanism. It was developed based on the knowledge and insights of experts
and business people from various industries in order to visualize an increasing role of IPs as
management driving source at the time of transition of the social, economic environment
from the 20th century type, in which the market was driven by stable supply of products, tothe 21st century type, in which the market was driven by diverse values of users who seek
experiences and empathy. The Design Sheet can be described as a condensed framework of
cutting-edge knowledge and insights in designing corporate management. This is intended
to visualize value creation mechanism which can work as a future management base forsustainable corporate growth. There is an increase in use by companies. The design sheet
facilitates obtaining a big picture of time-conscious corporate management and to makepeople aware of the relationship among resources, business model, and value. In order toappeal to diverse values of users, companies are anticipated to be innovative in flexibly andcontinuously designing its value creating mechanism and, for that purpose, to appropriately
evaluate the role of IPs in the value creating mechanism. Companies that can well organize
their management strategy in keeping with the concept of the Management Design Sheetcan be viewed as having their strategy being built according to a 21st century type of logic.
Scala’s original main business is the promotion media business of planning, production,
and website production for corporate promotion activities targeted to consumers. However,
due to the intensified competition in the media CM market, the business deteriorated andbecame loss making. Scala then boldly decided to sell the promotion media business and to
shift into the SaaS/ASP business. Initially, without having any packaged software for sale,
Scala developed services that satisfied needs of customers and expanded a line of services.
Precisely by having to start from scratch, Scala was able to create capability in consultation
sales and in engineering to develop products, which has now become Scala’s advantages.
Such transition is organized in the Management Design Sheet. Reviewing the past, it isclear that Scala has necessary items in place, demonstrating its consistent, logical businessstrategy evolving around the provision of value to customers.
From GCC Management™ Analysis Report: Scala, Inc. [4845] available athttps://j-phoenix.com/wp-content/uploads/2019/05/4845_scala_j-phoenix_research_
report_20190726_%E8%8B%B1%E8%A8%B3_final_2.pdf

24 WICI • Setting the New Agenda for CFOs

JPR-Scala Business Management

Setting the New Agenda for CFOs • WICI 25

BNDES Approach to Evaluating
Intangibles
Created in 1952 to contribute to the development of Brazil, the Brazilian Development Bank(BNDES) saw the intellectual capital approach as an opportunity to expand its knowledge
regarding its clients and create a culture within the company which stimulates people to use
more than the traditional financial tools for evaluating its portfolio.
At the end of the 2000s, BNDES created a working group focused on structuring an approachthat would allow the bank’s staff to capture information regarding the competencies andcapabilities of companies in their operations analysis. At that time, the evaluation of
BNDES’ clients in terms of intellectual capital was performed on a case-by-case basis, mostly
depending on the tacit knowledge of each technician.
As a result, the Business Evaluation Methodology (MAE, for its Portuguese acronym Metodologia de Avaliação de Empresas) was created, which sought to systematize andstructure the evaluation of intangible assets of BNDES’ clients. MAE is an instrument forknowledge management and operations support, which is based on a roadmap for assessing
intangible assets, competitiveness and company strategy. It enables the qualitative evaluationof companies in BNDES’ portfolio, based on a collegial analysis process, considering aspects
such as innovation, socio-environmental responsibility and practices, corporate governance,
human resources policy, among others. Through MAE, BNDES attempted to bridge the gap
between theory and practice with regard to evaluating intangible assets.
Since the implementation of MAE, BNDES has evaluated around 140 companies. Although
this number represents a small percentage of the Bank’s clients, the methodology has provento be of great importance to boost the institutional knowledge on clients; additionally,it enables BNDES to map and monitor the evolution of the Brazilian market in terms ofintellectual capital.

Methodology
MAE consists of 28 questions regarding Intangible Assets and Competitive Analysis. For
each question, there are 5 parameters (from 1 to 5), and the company must fit in one ofthese levels. Level 5 reflects the benchmark in each question, whereas level 1 represents acompany that has virtually no capabilities/practices regarding that specific question. The
methodology seeks to evaluate 7 intangible “capitals”, as well as the Market Structure inwhich the company operates (which will not be discussed in this article).

26 WICI • Setting the New Agenda for CFOs

MAE QUESTIONNAIRE STRUCTURE
STRATEGIC CAPITAL

1. Strategic Planning
2. Strategy History
3. Current Strategy - Consistency and Viability
4. Diversification
RELATIONAL CAPITAL

5. Customers
6. Suppliers
7. Experience and Reputation
8. Brand
SOCIAL AND ENVIRONMENTAL CAPITAL

9. Social and Environmental Responsibility
10. Social and Environmental Management
11. Contribution to Local and Regional Development
12. Social and Environmental Risks and Liabilities
CORPORATE GOVERNANCE CAPITAL

13. Corporate Structure and Succession Process
14. Transparency and Audits
15. External Control and Board of Directors
PROCESSES AND INNOVATION CAPITAL

16. Operational Efficiency
17. Management Systems
18. Innovation Management
19. Technology Training>>
Setting the New Agenda for CFOs • WICI 27>>
HUMAN CAPITAL

20. HR Policies
21. Qualification of Managers
22. Corporate Environment
FINANCIAL CAPITAL

23. Financial Management
24. Liquidity and Financial Flexibility
25. Regularity and Allocation of Results
MARKET STRUCTURE

26. Competitive Positioning
27. Market Power in Relation to Clients
28. Market Power in Relation to Suppliers

28 WICI • Setting the New Agenda for CFOs

Real Cases
The following examples are real cases in which MAE was used to evaluate BNDES’s clients interms of intangibles. Two cases were selected without using the real names of the companies;
Company A is a highly qualified company in terms of intangibles, whereas Company B still
has many opportunities for improvement. Both cases are discussed below:

Company A
Company A is part of the cellulose industry. Using MAE as a methodology to evaluate its
intangibles, the analysis group realized that the company has important capabilities,
processes and resources that make it an important player in the market. The radar graphic
created at the end of the evaluation is shown below:

As one can see in the graphic, Company A has highs scores in all areas, especially regarding its
Corporate Governance Capital. For this Capital, some of the company’s practices and capabilities
which justify this score are: great level of transparency; good structure for handling corporate
matters; being part of some major stock exchanges and respecting some of the high-level
corporate governance practices. Regarding the other Intangible Capitals, some important
Setting the New Agenda for CFOs • WICI 29

issues were considered, such as: being a major player in the industry and having a great levelof efficiency; having well-structured policies and practices regarding Social and Environmental
Responsibility; and taking the matter of innovation as a strategic pillar, with appropriate
investments and focus on partnerships. Undoubtedly , the analysis group identified somepossibilities for improvement and possible risks to the company (such as the low level ofdiversification in terms of businesses and clients), but, in general, the company was considered
to be a very good model of an institution which cares about its intangibles aspects anddevelops processes and capabilities which continuously reinforce its potential.

Company B
Company B is part of the shipbuilding industry. Using MAE as a methodology to evaluate its
intangibles, the analysis group was able to identify some of the company’s strengths, butthey also detected many possibilities for improvement, which made the company’s score very
low, as shown in the graphic below:

30 WICI • Setting the New Agenda for CFOs

To reach this score, the analysis group considered many aspects, such as: lack of mechanisms
to evaluate the organizational climate and low investment in training; few relevant projects
with social impact; financial fragility; a merely “top-down” approach in terms of formulating
the corporate strategy; among many other issues. The company also presented some importantcapabilities and good practices, such as good efficiency in terms of its processes and thedevelopment of policies regarding Quality, Safety, Health and Environment Protection.
However, since the company lacked many other good practices in terms of its intangibles,
its score was fairly low.
These two cases attempted to show how MAE works and what its outputs are. It is importantto reinforce that not only is it a methodology which allows BNDES to understand its clients
better, but it also gives the opportunity for the companies to understand its strengths andweaknesses: at the end of the evaluation, a member of the analysis group gives a feedback
to the company and discusses the results, which allows the clients to identify its flaws, know
its potential and evolve in terms of intangibles.

Next Steps - the new methodology for evaluatingintangibles
After being used for years, MAE has recently faced many challenges. Although themethodology has had much success and has delivered some important results to BNDES,
new scenarios in Brazil have demanded different and innovative instruments. MAE wasfocused on bigger companies that were already BNDES’s clients, and it became clearthat smaller companies were the ones who needed to be looked at in a more thoroughway, especially when it comes to evaluating intangibles. Many small companies have
had difficulties to become BNDES’s clients due to the traditional credit analysis, butthese companies usually have a great potential regarding intangibles that should betaken into account. If that could be properly evaluated, maybe these companies could
have some flexibility and become new clients, because not only would the traditional
credit analysis be considered, but also a new methodology for evaluating intangibles.
Based on this philosophy, a new methodology was created and it was called Intangibles
Evaluation Methodology (MAI, for its Portuguese acronym -Metodologia de Avaliação deIntangíveis).
The Intangibles Evaluation Methodology (MAI) is under development and validation, and it
is focused on smaller companies from knowledge-intensive sectors (which usually require agreat deal of intangibles). The process of evaluation has also changed; whereas MAE was amore thorough process (and also more complex and time-consuming), MAI is supposed to bea faster and more objective evaluation.

Setting the New Agenda for CFOs • WICI 31

For this purpose, some changes were made, such as:• The questionnaire focuses on less intangible capitals (the more important ones for theknowledge-intensive sectors and smaller companies);• Questions are binary (“True” or “False” answers), with an option to select “Not Applicable”
when that specific question does not make sense within the reality of the sector or theevaluated company. This is a big difference from MAE, whose questions with parameters
were more subjective and complex;• For each question, there are examples of indicators that can be used to help verify whether
the company meets the criteria in that specific question. These indicators help to guidethe evaluator when answering the questionnaire, making the process less subjective;• The tool has algorithms that facilitate answering the questionnaire and generating graphics,
scores and written highlights.
Although still under development, MAI is a project with great expectations. This initiative
seeks a greater alignment between the evaluation of intangibles and BNDES’s current needs
and strategic orientations, and hopefully smaller companies will have an extra tool that may
help them show their true potential.

32 WICI • Setting the New Agenda for CFOs

Appendix
About WICIWICI (the World Intellectual Capital/Assets Initiative) recognizes the need for corporate
reporting that integrates the communication of narrative and quantified information on
how organizations create value over the short, medium and long term through the creation,
management, combination and utilization of intangibles. WICI was formed in October 2007,
and its participants include organizations representing companies, analysts and investors, theaccounting profession and academia, who collaborate together to promote better corporate
reporting by recognizing the role of intangibles/intellectual capital in the sustainability ofan organization’s value generation.

Find out more http://www.wici-global.com/

Setting the New Agenda for CFOs • WICI 33

WICI Framework
WICI Intangibles Reporting Framework aims to foster and facilitate reporting on howorganizations create and/or identify, manage, combine and utilize their unique intangibles inorder to generate value and achieve business sustainability. The WICI Framework is intended
to help organizations to make decisions and allocate resources in a more effective andefficient way.
Find out more http://www.wici-global.com/framework

Other relevant resources
Capitalism without capital - the rise of the intangible economy
The End of Accounting
IIRC Framework
EFRAG Intangibles Literature Review
CFO Leadership in <IR>

Graphic Design and layout

Finance & Sustainability Communicationwww.mercuriogp.eu

34 WICI • Setting the New Agenda for CFOs