THE RISE (AND FALL) OF THE INTELLECTUAL CAPITAL STATEMENT:

WHATEVER HAPPENED TO THE LEGITIMACY OF INTELLECTUAL

CAPITAL REPORTING IN DENMARK?

Authors Christian Nielsen, University of Aalborg

Robin Roslender, University of Dundee and University of Aalborg Stefan Schaper, G.d’Annunzio University, Pescara

Commentary by

John Dumay, Macquarie University, Sydney

Critical Perspectives in Accounting Conference 2014 July 8 2014

Overview

Research question?

• Original ICS was formulated in 2000 and project ended over a decade ago in 2003.

• failure to significantly develop the ICS, or its counterpart in the form of the Intellectual Capital Report is a puzzle

• absence of literature that explores what has actually happened to the ICS within Denmark since 2003.

• It was these questions that motivated a study of the fate of ICS practice within the cohort of companies participating in the project between 1997 and 2003.

Analytical Framework

Figure 1: Extended phases of organizational legitimacy (Tilling and Tilt, 2010: 75)

Research Method

• Phase 1: identifying the potential research sample – 102 companies

• 11 from the first project, 89 New Guideline project companies and the two coordination and consulting organizations.

Research method

Still exist 53%

Liquidated / Unknown status

16%

Have merged 20%

Transformed 7%

Cleavage 4%

Partly exist 31%

Companies's current status

Research method

Original,

same company

28%

Original, not same

company 50%

New contacts

22%

Status of interviewees (n° of interviewees: 64)

Research method

• Phase 2: revisiting the guideline companies – semi-structured interviews – telephone rather than face-to-face interviews – semi-structured interview guide was designed

following the research themes of establishing, maintaining and (possibly) abandoning the ICS project within the company.

Why did the companies participate in the guideline project?

INTERNAL interest of mainly 1 person 28,5%

INTERNAL interest at company

level 43%

EXTERNAL reasons 28,5%

Why started? (42 answers)

What did the project companies report on intellectual capital?

Mainly about

employees 59%

ALL elements

21%

Processes 10%

customers 7%

Technology 3%

Main focus? (29 answers)

What did the project companies report on intellectual capital?

Internal 46%

External 32%

Both 22%

Internal or external purpose of IC reporting (37 answers)

How were intellectual capital reporting practices maintained within

companies?

HR 21% COMMUNIC

ATION 7%

FINANCE 7%

R&D 3% SALES

3%

Interdisciplinary group

35%

Small workgroup

24%

How organized? (29 answers)

Were intellectual capital reporting practices substantially embedded?

Integrated with existing

30.4%

Mainly questionnair

es 13.0%

Created own databases

26.1%

Yes, not specified

8.7%

No 17.4%

Source of problems

4.3%

Used automatized processes? (23 answers)

Extension or the disestablishment of intellectual capital reporting practices?

0% 20% 40% 60% 80% 100%

01234567

>10

Number of ICS done by companies (65 statements)

Average % of companies

Did intellectual capital reporting continue in other ways?

Well, we developed our own guidelines and followed that practice, we established our own structure, we didn't followed the national guidelines, in fact we were earlier than the guidelines, we looked of course at it and took out something but we thought our own were better.

What were the perceived effects of the guideline project?

NO 26%

YES 15%

YES, potentially

10%

YES, mainly in relation

to HR 21% YES, mainly

external perception

18%

YES, awareness

of recourses

10%

Positive effects? (39 answers)

Discussion

• ICS was used principally for internal reporting purposes

• ICS simply didn’t provide value for money and had been overtaken by new priorities as companies evolved

• was both well-conceived and resourced, and staffed with representatives from academia, industry, the audit profession and government

Discussion

• In the absence of any mandatory reporting requirement, it was easy for companies to adopt a minimalist approach to IC reporting.

• decade on from the guideline project it is possible to see parallels in relation to recent interest in business models and integrated reporting.

• IC remains valid a decade on from the end of the guideline project.

Conclusion? • Suggest that whatever legitimacy might be identified with

the outcome of guideline project remains moth-balled. • This legitimacy has not been lost as a consequence of being

shown to be a chimera (fantasy) possibly in the context of the renewed debate about the future of financial reporting.

• Left to their own devices, companies are generally happy to account and report in ways that are regarded by them as meeting the information needs of their principal stakeholders

• As long as the regulatory authorities are prepared to support powerful stakeholders little or nothing can be expected to change.

Critique

• The Danish IC statement is put upon an artificial pedestal based on rhetoric rather than fact: – “continues to be identified as being in the vanguard of

developments within the field of intellectual capital disclosure”.

– “the resultant Intellectual Capital Statement (ICS) stands out due to a combination of sound theoretical underpinnings and its empirical grounding, in opposition to most of the other initiatives that were largely based on theoretical perspectives or much smaller empirical samples than the 100 plus companies involved in the Danish project”.

Critique • Literature review on IC reporting is stuck in the 1990s

and early 2000s. A lot has happened since then especially in: – Europe (InCaS, RICARDIS); – Germany (Wissensbilanz) over 350companies; – Austrian Universities; – Hong Kong IPD project with over 600 SMEs; and – Japan’s Intellectual asset management report project

currently with 297 companies (366 reports) See Svieby’s website and Dumay & Roslender (2013) for a listing of IC frameworks.

Critique

• Considering the plethora of other IC projects mentioned why would we be only concerned with an “absence of a body of literature that explores what has actually happened to the ICS within Denmark since the termination of the Danish Guideline Project in 2003”?

• What is the research question and how does the research contribute to the ‘state of the art’ of IC research?

Critique

• Why does legitimacy theory come before the research? – Establishes pre-set ideas and categories before

data is collected – Why not stakeholder theory per your

(conclusion)? – Why is legitimacy theory only mentioned 3 times

and Tilling & Tilt (2010) not mentioned at all after page 12?

Critique

• Results are descriptive and not much different from the results of early research.

• Figure 10 is misleading as it adds to more than 100% (0 and 1 are cumulative and >1 are subsets of 1).

• Why mention “Integrated Reporting” at the end of the paper? Why not in the literature review?

The way forward?

• Current and up to date literature review • Focussed research question • Remove the pedestal from under the ICS or

backup the rhetoric • If using ‘legitimacy theory’ explain why better

and refer to it in your results, discussion and (conclusion) and not just as a frame for the papers headings