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In the Netherlands, for 10 years, there has been a high interest of policy makers and institutions in the influence of technology and knowledge on the development of the firm and the economy and therefore, on intangible issues.
Today, Netherlands aims to play a leading role in Europe concerning disclosure of intangible assets. According to A. Jorritsma-Lebbink, Minister of Economic Affairs":
"The Netherlands is rapidly developing into a knowledge-intensive economy (..). It is therefore strange that financial accounts are dominated by information on buildings and machinery, in other words the "classical" or physical production factors. The value of "knowledge" - the R&D work, training, intellectual property, etc. - is not easy to identify in accounts. And that is in fact the reason why young knowledge-intensive businesses in particular have very great difficulty in finding external financiers".
And in fact, as early as 1992, the Dutch Government estimated that intangible assets accounted for more that 35% of the total public and private investments in the Netherlands.
In 1998, the Government, in particular the Ministry of Economic Affairs, launched an "Intangible Assets pilot project" on intellectual capital reporting in association with four firms of accountants. Named "Balancing Accounts with Knowledge", it shows that intellectual capital reporting is feasible. Since then, the Dutch Government has decided a range of follow-up actions.
Other actors plays a leading role such as Dutch Statistics, research centres, networks and consulting firms.
1. The Governmental Project "Balancing Accounts with Knowledge"
1.1 Background of the project "Balancing Accounts with Knowledge"
The under-reporting of knowledge has negative repercussions at three function levels:
- Business-internal function:
- Business-external function:
- Social function: there is also frequently a lack of insight into specific categories of intangible assets at macroeconomic level. The government’s own accounts are also heavily based on tangible investments. This lack of data makes it difficult for the government to conduct a policy relating to categories of intangible investments.
This failure to properly chart intangible production factors could hamper the full utilisation of the growth potential of the knowledge economy.
Thus, in a letter to the Lower House of Parliament (parliamentary papers II 1997/1998, 25080, no. 27), the Minister of Economic Affairs announced that he would be commissioning a report on the usefulness of, and problems surrounding, the valuation of intangible assets.
The minister’s letter was a reply to a request in June 1997 by the Member of Parliament Mrs Voûte-Droste for a policy statement on intangible assets. It was asked to conduct an insight into the legal aspects governing the management of intangible assets and how the private sector deals with these aspects in practice.
The Minister announced the launch of the project "Balancing accounts with knowledge" as follows:
"The Ministry of Economic Affairs will be launching a pilot project to allow accountants to gain experience with alternative methods of "valuing" intangible commercial assets. More specifically, one or two accountancy firms will be given the opportunity to acquire experience in compiling "annexes to annual company accounts" using a number of existing methods. This newly acquired experience will, it is hoped, eventually persuade banks to weigh these assets more heavily when considering applications for finance. The results of this experiment will be described in a report which will be sent to parliament for information purposes."
The pilot project was prepared by approaching all the accountancy firms in the Netherlands via a tendering procedure to which the NIVRA (Organisation of Chartered Accountants) and the NOVAA (Organisation of SME-accountants) lent their support. Four firms were selected (Ernst & Young, KPMG, PricewaterhouseCoopers and Walgemoed). These firms were asked to develop a method for including intangible assets in their financial reporting. They were then asked to apply this method to three of their clients, who should preferably be knowledge-intensive companies. The accountancy firms were deliberately given complete freedom in their choice of methodology. This resulted in a range of methods which are briefly discussed in the next section.
The project was supervised by a monitoring group consisting of members of the accounting profession and from related sectors such as banking, institutional investment, the stock exchange and business and industry. This broadly based committee was appointed mainly to improve the external function of the annual reporting requirement. In particular, the project has been carried out in consultation and cooperation with the Royal Netherlands Institute of Chartered Accountants (Koninklijk Nederlands Instituut van Registeraccountants) and the Netherlands Order of Management Consultant Accountants (Nederlandse Orde van Accountants administratieconsulenten - NovAA).
The results of the pilot project were set out in a report "Intangible assets. Balancing accounts with knowledge" published in June 1999 in order to coincide with the OECD conference, "Measuring Intellectual Capital", which was organised in Amsterdam in cooperation with the Dutch Ministries of Economic Affairs and of Education, Culture and Science (see OECD pages).
This report was also sent to the Lower House of the Dutch Parliament. This prompted the chairman of the permanent parliamentary committee for Economic Affairs to ask the government for its standpoint on the issue.
1.2 The findings
The report gives a detailed description of the four methods. Each of the four firms chose a totally different approach, as originally intended by the project. The aim was that the Ministry of Economic Affairs should "familiarise itself with the entire field of play, without restricting itself to the official margins".
The shared conclusion reached by the studies was that the companies surveyed had the least objections to providing a combination of retrospective/non-accountable information for external reporting purposes. As regards prospective/accountable methods, the companies surveyed recognised a value mainly for their internal management processes, but were still extremely reluctant to use these for external reporting, due to strategic reasons and the possible tax repercussions of providing insight into intangible assets. However, the report does describe an instance in which a company gained an external benefit (namely more finance) from providing insight into its intangible assets. It was also found that financial analysts look more favourably on a liberal supply of (prospective) information. One company remarked that it was better for companies to publicise their own information themselves than for the outside world to speculate about it.
According to the Minister, a trend is currently visible, especially in the US, in which the provision of principally non-financial information concerning intangible assets is strengthening the position of employers on the labour market, which is short of knowledge-workers.
The conclusion must therefore be that it will only be possible to make new inroads with regard to external financial reporting if it is done as an extension to internal reporting. Ultimately, it may well be that pressure from external players (shareholders, financial analysts and banks) will force the publication of this information. The driving force behind this trend may then effectively shift from business-internal to business-external factors.
1.3 What role for the public policy?
According to the Ministry of Economic Affairs, removing the bottlenecks surrounding internal business operations is primarily up to the companies themselves.
However, by addressing institutional conditions, the government can help to promote awareness among companies concerning the importance of internal business management. The government can also help to remove bottlenecks relating to external and social functions.
The study also showed that institutional conditions must tie in with the perceptions, concerns and priorities of entrepreneurs. In other words, they must interface smoothly with internal applications relating to commercial management, otherwise they will be seen as an added burden.
2. The Dutch Agenda on Intangibles
In order to continue to take part in the debate concerning intangible assets and transparency in the Netherlands, the Dutch government wants to encourage more attention to be given to the topic.
In fact, the Government tends to consider that if it does not act, there will be no spontaneous continuation of the work done:
- it feels that the initial impetus it has been provided will not be enough to persuade the private sector to continue the initiative of its own accord;
- if the topic has now become more and more widely discussed in academic circles, and is increasingly generating discussion and publications at both national and international level, it has not always resulted in more practical information for the companies themselves.
The government has therefore suggested a number of follow-up actions. These proposed follow-up actions are designed to tackle the bottlenecks hampering the internal, external and social functions.
2.1 Follow-up actions concerning the "Internal function" : an Intangible assessment tool for SMEs and a promotional campaign for entrepreneurs
According to the fact that the pilot study "Balancing Accounts with Knowledge" analyses large and medium-sized companies, there is a need to cover SMEs for which the topic of intangible assets is different (in particular for start-ups companies).
The Ministry of Economic Affairs has decided in conjunction with NIVRA to commission the EIM to develop an assessment tool to measure the intangible commercial aspects of business management in a clear and objective way. This will give both entrepreneurs and financiers a better insight into the intangible aspects of companies. This can then help to make it easier for new and rapid secondary growth companies to attract financing. The aim is for the joint Ministry-NIVRA publication on intangible assets to be accompanied by an online assessment instrument. This instrument can help the entrepreneur to benchmark his score against the scores achieved by other entrepreneurs. Companies will then have a quick reference guide telling them what information finance providers value when considering an application for finance. The instrument can also help to improve internal business management.
The government will promote these concepts more widely in order to ensure that their use is more widespread. It will make entrepreneurs more aware of the importance of transparency within their organisation as a means of improving the way they operate.
2.2 Follow-up actions concerning "External function"
They will consist in the following :
Encouraging more involvement by other stakeholdersThe government wants to conduct a study to find out how far external players, and especially financiers, shareholders, employers and employees, would appreciate more transparency in this area.
As a follow-on to the pilot study, which was fairly general in structure, the relevant ministries would like to hold further discussions with the aforementioned external players. The discussion could seek workable and comparable forms of transparency and explore ways of managing intangible assets. New forms of investment could also be discussed. These discussions will also promote more attention for the subject in a wider forum.
Comparability of intangible assets: framework and set of indicatorsBased on the information gathered so far and based on the discussions that have been held with external players, a framework can be drawn up to enable a comparison to be made between companies. This framework can be based on internal and external indicators which make visible the intangible assets within the company. A possible framework would need to be tested for its applicability in consultation with companies and e.g. financiers. A next step would be to allow the companies to test the framework in practice on a voluntary basis.
Legal aspectsThe government is not at present considering imposing more stringent statutory requirements on the capitalisation of intangible assets:
- the Government tends to believe that the interest in the subject - encouraged to some extent by the government - will be sufficient to encourage the gathering of information that is relevant to internal, and ultimately also to external, purposes;
- the Government also considers that the international developments in this respect will also encourage a growth in the provision of information in this area. International regulations and directives are a decisive factor in defining national legislation and regulations in the institutional framework. Therefore, it does not need to do more but just to follow closely to these developments, be they within IASC and at European level.
The Dutch Minister of Justice will make a statement to Parliament on the subject in the foreseeable future.
Fiscal aspectsA discussion is on-going on this issue. The State Secretary for Finance will publish his standpoints in the form of a policy rule.
2.3 Follow-up actions concerning the "Social function"
Participation in international initiativesThe Dutch Government will actively participate in international work concerning intangibles, in particular:
- its participation to the OECD "public-private task force" (see OECD section);
- its participation to EC activities;
- its links with other EU member States interested in this issue (Scandinavia, UK).
Two CBS (Dutch Statistics) statistical surveys on intangible assets have been already performed. "Despite this, however, the volume of statistical information on intangible assets is severely underrepresented compared with the information on tangible assets". The government attaches great importance to bringing the supply of statistical information on intangible assets more in line with the supply of information on tangible assets.
Therefore, the government "values the projected test implementation of a knowledge module at the National Accounts, which is being developed by the CBS.
Also, it will encourage the participation to international statistics programmes (Eurostat, Voorburg Group, etc.) : "the government is therefore taking steps to ensure that the Netherlands plays an active role in these initiatives".
A R&D programme on intangibleThe new approach to intangible assets will also affect the content of accountancy courses and business economics in general. In order to ensure that the academic world adopts a co-ordinated approach to this topic, the government wishes to encourage a range of disciplines to focus on intangible assets through a research programme. This could include a survey of the consequences of this proposal for Corporate Finance, Intellectual Property, and so on.
"In view of the recent pilot project and the international interest there has been in this initiative, the Netherlands could take a leading role in this sphere within Europe."
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Contact Minister
of Economic Affairs The Report "Balancing Accounts with Knowledge" can be downloaded on Minez web site : http://info.minez.nl/pdfs/25b19a.pdf |
3. Other initiatives and actors
3.1 Dutch Central Planning Office and Statistic Netherlands
As indicated below, the Dutch Central Planning Office (and its Knowledge Economy Unit) plays an important role at the national but also international level with Eurostat and the Voorburg Group.
It was among the first European Statistical agency to ask Dutch Statistics (CBS) to include quantitative information on investments in intangible fixed assets. CPB Research Agenda 2000 contains a whole section dedicated to "Knowledge Economics" (with projects such as Long term analysis on the role of knowledge in the Dutch economy, Tasks and incentives in higher education, Old and new trade-offs in R&D, Availability of human capital, Spending on education and R&D, Knowledge creation in networks and networks externalities, etc.).
Two main publications have been released:
- Michael Croes: Intangible investments in fifteen OECD countries, OECD / Statistics Netherlands, Paris / Voorburg, 1999;
- Intangible investments: indicators for intangibles, Eurostat /Statistics Netherlands, Luxembourg / Voorburg, 1999.
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Contact Dutch
Central Planning Office - Knowledge
Economy Unit Statistics
Netherlands - Centraal Bureau voor de
Statistiek |
3.2 Advisory council for science and Technology Policy (AWT)
The Cabinet asked the Advisory council for science and Technology Policy (AWT) for an advisory report on intangibles. In March 1998, AWT issued its report under the title "Inestimable wealth of knowledge" ("Onschatbare rijkdom aan kennis"). Appendix contains a comprehensive review on the theme of intangible and human resource accounting. In particular, the publication discusses the legal provisions which apply in the Netherlands with regard to intangible assets. National Guidelines of the Netherlands Council for Annual Reporting are compared to international accountancy guidelines and European corporate legislation.
The AWT considers that the inclusion of intangible assets on the balance sheet must be subject to very strict conditions. Moreover, the inclusion of human capital is not realistic. Finally, it is said that the government should not play a role in the development of alternative methods for the quantification of corporate knowledge potential. In its response to AWT, the government has agreed with several conclusions of AWT report but disagreed with the statement on the role of government: it must play a role in the development of new methods.
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Contact Advisory
Council for Science and Technology
Policy (AWT) The report "Inestimable wealth of knowledge" is available on AWT web site (in Dutch): http://www.awt.nl |
3.3 Other actors: researchers, consulting and networks
Several actors and networks have been identified as playing a particular role in the "intangible landscape".
MERIT ( Maastricht Economic Research institute and Innovation)MERIT is a university research institute based at the Economics Faculty of Maastricht University, the Netherlands. It focuses research on the economics of technological change and innovation and specialises in the measure of knowledge.
One leading researcher is Luc Soete, Professor of International Economics and Director of MERIT. His research interests cover the broad range of theoretical and empirical studies of the impact of technological change, in particular new information and communication technologies on employment, economic growth, and international trade and investment, as well as the related policy and measurement issues. With respect to the latter he is currently one of the strong proponents of the "new economy" phenomenon.
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Contact MERIT
- Maastricht Economic Research institute
and Innovation |
Economic Institute for small and Medium sized Industry (EIM)
The Economic Institute for small and Medium sized Industry (EIM) has carried out an exploratory study into a standard method for the SME sector. Entitled "The valuing and/or disclosing of intangible business assets in the SME sector"; it was published in December 1998 (P. Th. van der Zeijden and KR Jonkheer - EI Zoetermeer).
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Contact Economic
Institute for small and Medium sized
Industry (EIM) |
KPMG Knowledge Management The Netherlands
KPMG Netherlands has created a specific activity on Knowledge Management: the Knowledge Plaza. In The Netherlands, it has been involved in several projects and studies for the Government:
- The "Balancing Account with Knowledge Project" commissioned by the Dutch Ministry of Industry
- a Study "Knowledge in Balance" ("Kennis in balans") has been commissioned by the Ministry of Education, Culture and Science in 1996. The objective was to look into the feasibility of drawing up a "knowledge balance sheet". KPMG examined the annual reports of a number of Dutch companies. The study concluded that the inclusion of knowledge on the balance sheet was not a practical position. It suggested one possibility, which was to insert an appendix to the annual report. KPMG furthermore advocated the setting up of a Human Resource Accounting database for benchmarking purposes.
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Contact KPMG
Knowledge Management The Netherlands |
Kenniscentrum CIBIT - International Knowledge Management Network
Kenniscentrum CIBIT provides consultancy services and top level education for professionals. Its focus is in three main areas: Knowledge Management: Smart ways of working; Smart Business with ICT: customer care, virtual organisations and virtual learning and Smart IT for business: methodologies and technologies for innovative system.
In 1989, it has founded an International Knowledge Management Network with the aim to promote and develop Knowledge Management within organisations and agglomerations of organisations. Today, it groups around 700 members around the world.
Kenniscentrum CIBIT and the International Knowledge Management Network took part in a benchmarking study on "Knowledge Management and the Learning Organisation" of the European Foundation for Quality Management (EFQM) and the American Productivity and Quality Center (APQC). Kenniscentrum CIBIT has also published a booklet on Knowledge Management entitled "Knowledge Management: dealing intelligently with knowledge". Finally, it has implemented an Intranet for its members and a programme of master class.
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Contact Kenniscentrum
CIBIT - International Knowledge
Management |
Other networks have been created in the Netherlands such as :
- The Knowledge Farm : created to stimulate thinking about all aspects of Intellectual Capital. "None of the founders have any formal credits regarding Intellectual Capital, but have built successful businesses and have experienced first hand the value of recognising, harvesting and managing Intellectual Capital to improve their companies and the efficiency of their business". The Knowledge Farm has organised a Seminar on Intellectual capital and the Knowledge economy in may 1999 "Kennis verdubbelt elke elf uur" (report available in Dutch).