Valuation of Intangibles

Our recent round tables exploring modernization of balance sheets and valuation methodology have produced consensus that intangibles can be valuable assets of a company.

In support of this conclusion, I just read two reports in the Wall Street Journal.

One was that the stock of Morgan Stanley, Bank of America and Citigroup trade at levels still below their market valuation in 2007, before the 2008 collapse of credit markets.

Badly wounded by the 2008 crisis, Morgan Stanley and Bank of America switched business models to lessen their dependency on trading and investment banking revenue and bring in wealth management clients. Those changes in their business model – an intangible aspect of governance – did lead to increases in their stock prices. An analyst’s comment was that “some people” still put a discount on their valuation, given their line of business.

Another comment by John D. Stoll pointed out that the valuation of Peloton, a maker of exercise bikes, depended on its being able to bill itself as a “tech” company because it includes an internet feature on its stationary bikes. The company – like Uber and WeWork – sought a tech aspect to its goods which would differentiate it from the competition when “tech” companies are given higher multiples on earnings by market speculators. Thus, the intellectual property, along with access to its creators and maintainers of a program for internet access to others also using the bikes has important value for Peloton.

Catch the Wave: Support the CRT!

Last fall brought us some very good news: the vision of our Principles for Business was unexpectedly fully affirmed by statements from the Business Roundtable on August 19 and by Klaus Schwab of the World Economic Forum on December 2. Further, we also received affirmation of the importance of moral capitalism from French President Emmanuel Macron.

Now, with leading organizations providing validation of our work, we need to press ahead with greater efforts in 2020 to provide more thought leadership for global business. Your financial support is needed. You can support our work in confidence that it is making a very constructive difference.

As our advocacy of a moral capitalism now reflects a tipping point in conventional thinking, we have opportunities to help companies with training of their managers and employees, to guide investors and the accounting profession in consideration of valuation methodologies which take proper account of stakeholders and the intangible capitals now so necessary for firm success in the marketplace and to convene more round tables around the world. We need support for our publication on Amazon of unique books, important intellectual contributions written by our friends and those who we admire which may not attract conventional publishers.

We would be very grateful for your consideration of a beginning-of-year contribution to our work.

To donate, please visit our homepage – – and click on the yellow “donate” button.

If you rather give by check or wire transfer, please let us know.

The CRT Principles and Reality

I have found it very helpful and persuasive to remark on when reality aligns with the guidance or perhaps even teachings implicit in our Principles for Business. My justification for doing so is that such coincidence is not by chance, but show the principles congruent with reality.

There are three recent stories which provide such congruence.

First, John Stumpf, former Chairman and CEO of Wells Fargo, was banned from working in the banking industry and fined $17.5 million by the American Comptroller of the Currency for his role in creating fake accounts a few years ago. Stumpf agreed to the ban and payment of the fine in a settlement with the Comptroller.

The alignment of reality with our principles is that not taking reasonable care of stakeholders and acting without integrity lead to losses. To enhance profitability, it is necessary to manage stakeholder relationships with due care, follow the letter of the law and then go beyond that to establish trust.

Secondly, Boeing just incurred its first annual loss since 1997. In 2018, the company reported profits of $10.46 billion. In 2019, the company reported a loss of $636 million. That drop in profits was a big hit to its shareholders. Boeing also just reported that the costs associated with its 737 Max 8 aircraft have passed $19 billion, another hit to shareholder’s equity. The cause of these losses was failure to design and build a sufficiently safe 737 Max 8 aircraft. This constituted a failure to provide customers and their customers with a quality product. As a consequence, Boeing lost money. Profit followed on customer experience.

Thirdly, Goldman Sachs has given its shareholders an unprecedented look inside the company to reveal its plan for making profits going forward. For the first time ever, the company set financial targets for itself and previewed new business models to enhance profitability. The bank will offer new consumer products like checking accounts and financial management, as does its competitors JPMorgan Chase and Bank of America. Since the collapse of credit markets in 2008, Goldman’s stock has not been as highly valued as the stocks of those competitors.

In taking care of its shareholders, Goldman proposes to satisfy new customers. In its repositioning, Goldman is seeking to better manage its relationship with two stakeholder constituencies – customers who might or might not buy its services and investors who might or might not buy its shares.

The relevant principle is:


  • A responsible business acknowledges its duty to contribute value to society through the wealth and employment it creates and the products and services it provides to consumers.
  • A responsible business maintains its economic health and viability not just for shareholders, but also for other stakeholders.
  • A responsible business respects the interests of and acts with honesty and fairness towards its customers, employees, suppliers, competitors and the broader community.

Special Offer for CRT Network

Recent statements by the Business Roundtable and World Economic Forum have set a new course for business enterprise: engage with all shareholders to seek long-term capital appreciation. This, as I have noted before, ratifies the vision of the Caux Round Table for Moral Capitalism (CRT).

Boards of directors must now determine for their companies just how to engage with all shareholders, attending to their material interests and making profits for owners. The more comprehensive business model requires boards to step up to wider and more strategic responsibilities. Boards are the custodians of enterprise value and the culture that will create or destroy value through its provisions for risk management of stakeholder relationships.

The Competent Boards Certificate Program available online is the only one I know which provides insightful and comprehensive orientation for board members – old, new and prospective – relevant to this new world of strategic stakeholder engagement.

I have been a speaker on a previous program and found my colleagues well-informed and attuned to the CRT approach to modern global capitalism. I also value the international scope of the program – available all over the world, building up a common understanding of responsible business leadership at the board level.

The interactive program covers 12 strategic topics of focus, including climate, ESG, supply chain, diversity and responsible use of data and cybersecurity, covered during 12 bi-weekly, 1.5 hour online interactive sessions.

Program participants will learn from over 70 global leaders, including our friend Paul Polman, Chairman of the International Chamber of Commerce, as well as global peers. Participants will also receive engaging preparation materials, questions to bring to your organization and board recommended readings and case studies.

As a privilege to the CRT network, Competent Boards offers you a 10% discount (a $449.50 value) off the full price, should you register for the next program. When you register, please use code Caux2020 for the interactive online program.

To learn more about the program and register, please click here.


Today is Brexit. The withdrawal of the United Kingdom from the European Union is historic. One way of thinking about its implications is to revert to history and culture: the Anglo-Saxons were never meant to be part of the continent. Over the centuries, they built on the fusion of Norman and Saxon cultures something unique, shaped by a unique legal system – the common law – and later by a Protestant sense of ministry – capitalism in the economy and constitutionalism in politics and governance.

Shakespeare famously put it thus: “This royal throne of kings, this sceptered isle, This earth of majesty, this seat of Mars, This other Eden, demi-paradise, This fortress built by Nature for herself Against infection and the hand of war, This happy breed of men, this little world, This precious stone set in the silver sea, Which serves it in the office of a wall Or as a moat defensive to a house, Against the envy of less happier lands,–This blessed plot, this earth, this realm, this England.”

The motivation for Brexit expressed by its proponents is a kind of ethnic exceptionalism – the economic advantages of union were not enough to offset resentment at subordination to a micro-managing, regulatory authority in Brussels. Napoleonic civil law procedures and bureaucratic norms did not wear well with common law values and traditions.

The Caux Round Table for Moral Capitalism’s Principles for Business and Principles for Government give value to internationalism and participation in global markets in order to provide value for customers, employees, investors and citizens. We would, therefore, advise the government of Boris Johnson to implement such principles from its new position of full sovereign autonomy.

Stepping back and looking at the big picture, Brexit should cause us to think about large dynamics in human civilization – what are the inter-dependencies among the economy, culture, politics and social structure? The complexities of these inter-relationships have attracted great minds – Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, Emile Durkheim, Max Weber, Antonio Gramsci, Keynes, Hayek and countless contemporary historians, sociologists, anthropologists, economists and political scientists.

What we can say with certainty is that each sector influences the others. A declining economy has political, social and cultural effects. A dysfunctional culture will lead to corrupt politics and lower economic growth. Social conflict will detract from just government and economic well-being. Totalitarian government will adversely impact culture and constrain economic innovation and efficiency.

The United Kingdom going forward will need to carefully balance its exceptional culture and political traditions with sound economic policy as part of a global civilization.

Duty of Care: A Restriction on Our Consumer Freedoms

In response to my recent email on who should stop whom from deciding as a consumer what to buy and use, Don Samuels sent me a very thoughtful reply saying:

“I remember in the late 70s, sitting in smoke-filled rooms for company meetings, where our CEO chomped on a huge, smoldering cigar and leaders at various levels puffed on a dozen cigarettes, in the middle of winter, with all windows shut tight. I remember gasping for air and struggling to speak without a hitch. The health considerations of second-hand smoke were still up for debate between the scientific research and the tobacco industry, but non-smokers like me were becoming convinced that we were paying a price for our smoking-co-workers’ freedom.”

His point about concern for others as a restriction on our liberties is a very sound one.

The old adage is: my right to swing my fist ends where your nose begins.

In the 1883 English case of Heaven v. Pender, Master of the Rolls Brett ruled that: “Whenever one person is by circumstances placed in such a position with regard to another… whereby he may cause danger of injury… a duty arises to use ordinary care and skill to avoid such danger.”

I was reminded of this source of personal duty to be careful of others by the recent outbreak of coronavirus in China. It seems most likely that the virus began to infect humans in a wet market for wild animals in China. Thus, personal decisions to buy and sell in a free market imposed dangers on others and have lead to many restrictions on personal freedoms in the Wuhan region.

The police powers of the state have long been accepted as reaching far enough to restrain our personal choices in order to decrease risks of harm to the health of others.

Moral Capitalism and Climate Change – Thursday, February 27th

At our November 22nd, 2019 luncheon event, the subject of climate change arose rather unexpectedly as a recurring theme in speeches and table conversations. When you pair that with other changes in the business zeitgeist, such as BlackRock (the world’s largest asset manager) CEO Larry Fink’s annual shareholder letter stating I believe we are on the edge of a fundamental reshaping of finance because of climate change, you know we’ve begun to enter new territory at the highest levels of corporate leadership.

How does this new business thinking align with the Caux Round Table for Moral Capitalism’s Principles for Business? What is the direction a responsible business should take? Is it all doom and gloom or are there potential opportunities to explore? What do you think?

Please join us at 9:00 am on Thursday, February 27 at the University Club of St. Paul to discuss what business can do to address this issue.

Registration and a light breakfast will begin at 8:30 am and the event at 9:00 am.

Cost to attend is $15 for Business and Public Policy Round Table members and $35 for non-members. Payment will be accepted at the door.

Space is limited.

To register, please click here (link to Eventbrite page)

The University Club is located at 420 Summit Ave in St. Paul.