I had the occasion this week to be invited to state some of my personal principles around enterprise provisioning. In current capital market behavior, there are several assumptions which, while being implicit, create the plastic failure of our system rather than facilitating the elasticity that expands collaborative success. I use the term "provisioning" rather than "financing" for an intentional reason. Without exception, NO enterprise's success is solely arbitrated based on access to, or command of, money. Therefore the myopic obsession which places money at the heart of economy defiles what centuries of evidence show: namely, that shrewd multi-dimensional asset stewardship, experience, leadership, innovation and countless other tangible inputs are necessary for any phenotypic success.
That said, tragically our current system favors what is known as "the last man holding the bag" principle. This principle simply states that there must be a series of inefficient extractors in a system who need to withdrawal excessive benefit just until the point of plastic failure at which point in time, there's nothing left for the last man holding the bag. Market price rises, put another way, are heralded as "success" but what is forgotten is that monetary flow means someone's gain is being extracted from someone else's loss. The current public equity surge is NOT the sign of a great economy - it's the evidence of a wealth transfer in which subsidized monetary policy from the FOMC is transferring money from public future productivity to present isolated private investors.
In the interest in giving you a personal window into my views in my daily business, the following is excerpted from a letter I sent to a board and to some potential joint venture partners on one of my business activities. For those of you who seek to miss the point of this post to decipher the parties, here's the paradox. This week I've been embroiled in issues arising from several multi-billion dollar mineral and energy transactions, an exceptionally large banking transaction, and the initiation of a large health-care transaction to treat one of the world's most virulent diseases. The letter excerpted below is not TO one alone but generalizable across several. I trust you find the points helpful as a point of departure for deeper conversation.
With respect to an impulse to effectively "cram down" the interest of prior shareholders in one business for the benefit of new joint venture investors, I wrote:
1. Honoring Fiduciary Stewardship: Any predatorial instinct to dishonor fiduciary commitments made in the past to sate future greed is unethical, offensive and the basis of the highest form of dishonor. While the majority of (a venture's) shareholders have acted with callous neglect in many instances…, this does NOT entitle them to our dishonor. Any deal that moves forward …, that lays in its foundation the evidence of dishonoring fiduciary interests is a deal that will not happen. (S)hareholders’ capital will have a mechanism to be returned or be attached to a minority participation…. (New) management would be ill-advised to assume that this venture can succeed if it begins by asking me as the opportunity creator and steward to defile my absolute fiduciary commitment.
While my second point, as written, contained enormous amounts of proprietary information which I will not reproduce here, the principle should be highlighted: Honoring Assets / Asset Stewardship. So, allow me to share an example from my company's activities. I am fascinated by the impulse to seek "control" of assets which provide no utility to one enterprise in an effort to "contain" or "focus" management efforts in another. In our history, we have developed countless technologies and information platforms which have been placed in perpetual public trust - things like the
and the Heritable
Innovation Trust. We also have
capabilities that have been placed in service to numerous interests including
global humanitarian crisis response, security concerns, law enforcement, and
other activities. While these activities
do not evidence monetary productivity on conventional financial statements,
their value is inestimable. The notion
that one can, in the name of one enterprise, remove or restrain these vital
Asset Stewardship opportunities which benefit millions around the world is an
evidence of a system that defines value and success far too narrowly. Similarly, if one stipulates value only in
what they apprehend as the extractive "value" (e.g. copper out of the
ground), defiling forests and fouling streams are merely artifacts of sociopathic
greed and represent impulses devoid of trustworthy stewardship. Global Innovation
The third has to do with how future benefit should be allocated in the face of a proposed joint venture bringing together capital, talent, technology, market knowledge, and, in this case, capital arbitrage.
3. Honoring the Meritorious Team: Money is a utility – not the agency of control. A funding party has every right to a fiduciary return of stewardship and reward. This is a principle that I warmly embrace. That said, if this program moves forward, our mutual wealth will be derived from the effort, intellect, experience, technology, relationships, monetary and non-monetary provisions, and instincts of the team that we assemble. As a result, while economic returns are reasonably, and may (in early majority) flow to risk capital, insofar as that capital has NOT been truly at risk, then returns for perceived and illusory risk will be commensurate with its actual role. This does not diminish (a partner's) role AT ALL. In fact it places it first in (monetary) returns. But greed – when one is relying on the dedication of credentialed access and talent – is evidence of shortsightedness. This attribute predisposes the enterprise that we’re building to failure. … (Success)… will only be realized if we honor ALL THE CONTRIBUTIONS at the table and realize that while I seek no majority or control, neither do I tolerate predatory, short-sighted greed. Our wealth will be commensurate with ALL OF OUR CONTRIBUTIONS. If we don’t share that vision, than we don’t share a common table.
These principles are as relevant to our structured finance programs as they are to our work in
Asia and the Pacific with the
ethical reframing of existing agricultural and extractive industry businesses. Systems that fail to integrate: complete
appreciation of all Commodities; sufficient time and effort investment to
establish shared Custom & Cultural values; transparent Knowledge sharing;
alignment of Monetary resources; full integration of Technical capacity; and,
full team engagement for the Well-Being of all participants; are systems that