April 12, 2021 • Tim Schantz
The past few years have seen company valuations swing wildly from towering highs to record lows. Market sentiment is a mercurial beast, so valuing the underpinnings of a company or brand to provide a more stable basis is essential. As such, understanding the true valuation of your organization’s historical experiences and heritage assets has never been more important. Traditionally, companies have approached the value of an archives through conventional accounting or insurance terms. This means that an archives either has an appraised value assigned by an expert or an estimate based on replacement cost calculations.
The reality is that a company’s archives is unique and irreplaceable. It’s also the case that many archival assets of the past 15 years are largely digital—therefore intangible—so assigning a replacement cost is untenable. As with family photos, it is impossible to place a tangible book value on such assets that have a specific meaning and form an essential part of an organization’s character and values.
Given that connecting the value of heritage to book value accounting is deeply flawed, a company should consider its heritage in the context of both its brand and aggregate market value and then determine how much of that value comes from its heritage.
Long gone are the days when accounting book values related directly to corporate market valuations. Yet traditional accounting perspectives continue to dominate the prevailing view of archival heritage value. Even when the majority of a company’s market value is represented by intangible factors, such as the value of its brand, it’s assumed that the value of historical assets can be treated like tangible assets. Why? Often it’s because archives management falls under facilities management or a similar department, where physical assets are managed. This technically means that archives can be written off over time, such that the founder’s original writings or 100-year-old photographs are written down to $0. Treating assets this way is especially surprising, because most well-structured C-suite compensation is directly linked to the long-term market valuation (that is, largely intangible value) of a firm and not the tangible book value of its assets.
Accounting for long-lived but depreciated assets can be problematic. Whereas a building or plant equipment may be written off over time and becomes potentially less productive (or more costly) the older it gets, archival assets do the opposite, becoming more valuable as time goes on. They offer significant value to an enterprise despite their written-down book value. Take the case of the initial incorporation papers for a company, signed by the founder. Their value as an asset will rise rapidly whenever a company milestone anniversary is marked, or when heritage exhibits are constructed, or when documentaries charting the organization’s development are produced. Notably, accounting for digital assets factors into IP valuation, but not the value of historical websites, email correspondence, social posts, etc.
Where do heritage assets fit into the valuation of a corporation? The book value of an archival collection is virtually irrelevant. Heritage is deeply connected to the overarching market value of a corporation, akin to how its brand is valued. Moreover, heritage can help differentiate competitors. In this respect, consider Johnnie Walker and its 200-year heritage versus many other whiskys. There is little doubt that the immense value of the Johnnie Walker brand to its brand owner, Diageo, is based on its substantial heritage. Even if the volume of Johnnie Walker consumed were comparable to the aggregate volume of other whiskys, there is no denying that Johnnie Walker’s heritage and brand recognition sets it apart from any competitor. As such, the value of a corporate archives is a component of aggregate brand value, not a defined appraised or replacement value.
However, brand valuation is imprecise at best—and so is valuation of historical assets. The choice of brand value ranking and methodology can lead to wide variances in the calculation. For example, the Interbrand Best Global Brands report for 2020 shows Amazon’s brand value at $200 billion, half of WPP’s BrandZ report on Amazon’s brand value of $400 billion. It’s an inexact science, so calculating the percentage heritage value within that brand value must be done with some latitude.
Although effective calculation of brand value and heritage value is elusive, it is not impossible. Start by avoiding viewing that figure as absolute—the value of our heritage is $X billion—but instead determine the percentage of the overall brand value as heritage value. This will vary by product sector: It likely will be a higher percentage for Scotch whisky or wine than energy drinks, for example.
Benchmarking within a particular industry is a logical first step. Primary research can determine the relative price premium someone is willing to pay for a heritage-based brand versus a brand not steeped in heritage. Alternatively, or in addition, the licensing value of specific assets, such as memorabilia, could be calculated on a present value basis as a component of heritage value.
Most important is to track this valuation over time, to gauge how that asset is performing and how well you’re using it to drive organizational activities.
Achieving business objectives that contribute to the P&L either directly or indirectly (e.g., reducing talent turnover and its associated costs) are paramount for most organizations. It is in this area that heritage can usually play a much larger role in how organizations communicate with customers, prospects, employees and other stakeholders. The more heritage assets are used, the greater their value, both in achieving objectives and in the organization’s valuation in the marketplace. A professional corporate heritage program to gather, organize and provide access to historical assets from throughout your company’s past—as well as the history it’s making today—is a strategic step toward harnessing your history’s inherent value.
For more information, check out our comprehensive guide to company archives.
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