The Magic of Debt and Equity Finance

Paul A. Zaman shares insights on the importance of a company choosing the right capital structure to enhance shareholder value … the alchemy of debt and equity

One of the key ways for a company, small or big to improve long term shareholder value is by having the appropriate mix of debt and equity and making good investment choices. Even a seasoned executive director often misunderstands this aspect. Lets first explore the history of equity and debt.

The Dutch started joint stock companies, which let shareholders invest in business ventures and get a share of their profits. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. This was a massive investment aimed at building the biggest merchant fleet to break the monopoly the Portuguese held. At its peak the company paid a dividend of 40% and had 50,000 employees worldwide, trading from Europe, Peru, China, Japan and Batavia. In 1798, after 196 years it failed financially due to funding its army and fighting wars with other countries to protect its business franchise.   Other stock exchanges were set up after the Amsterdam exchange such as London in 1697, New York 1817, Bendigo in Australia 1860 and Bombay in India 1875, which is the oldest in Asia.

The history of debt, that is money lending goes back to Biblical times. The ascent of Christianity in Rome meant that interest was usury and so immoral. This created the opportunity for others to fill the space and become moneylenders. Ironically centuries later it was Pope John XII whom created the Italian–French banking system. There was a hierarchical order among banking professionals; those who did business with heads of state to fund palaces and wars, the city exchanges for business trade, and at the bottom were the pawnshops or “ Lombards”. Most European cities today have a Lombard street where the pawnshop was located. As merchant shipping grew in importance money lending was closely linked to the major trading ports of London, Amsterdam and Hamburg.  It was in coffee shops that the investment opportunities and loans were discussed and traded, such as Jonathon’s Coffee House and Edward Lloyd’s in London In 1698. John Castiang began publishing a twice-weekly newsletter of share and commodity prices, which he sold at Jonathan’s, and which led to the formation of the London Stock Exchange. Lloyd’s shipping list led to the establishment of the famous insurance company Lloyds of London.

Most of us have experienced a bank loan or mortgage. The lender provides cash, called the principle and receives an agreed interest return and an agreed date when the principal will be repaid in full. There is no upside on the return to the lender if the borrower uses the funds and makes good profits. However if the borrower does badly then the lender risks the return of the principle. A lender is risk averse and usually secures the loan against a tangible asset, like land and property so they only loose the principle principal loan amount if the asset turns out to be inferior and not worth as much as initially expected. Usually lenders get a majority of their investment money returned

A share investor invests by buying a company’s shares and so the company receives cash. A company in law is set-up to be eternal with an ongoing sustainable business. The investor does not therefore expect to get their investment returned unless the company decides to change its business or close down. The investor does expect to get a share of the profits each year as a dividend.  Investors can also sell their shares to other individuals at a gain or a loss. Selling at a higher price means that the new buyer expects to see further increased long-term shareholder value that is increasing dividends. The down side risk, is that if the company does badly it makes losses and all the investment may be lost. In a closedown situation the tax office, lenders, employees, and suppliers get paid first and if there were any money left over this would be distributed to the shareholders. Usually shareholders loose all their invested money.

Shareholders are owners and have a long-term commitment and wish to see the company do well.  Lenders wish to protect the money lent and monitor for the risk of default.

Shareholders have upside potential from ever increasing dividends and so also the ability to sell the shares at a higher price. Lenders have no upside potential.

Shareholders can lose all and often do. Lenders usually can recover their principle funds by grabbing and selling a tradable asset such as property.

Therefore due to the different risk-reward profiles, the cost to the company in terms of paying ongoing dividends to an investor is higher than the cost of paying the interest on debt and repaying the principle.

Lenders will assess the credit rating by the ability to pay the interest each period without defaulting on these payments. The minimum comfort level if to have enough cash income is to cover the payment of the interest three times over. Another factor is the quality and sustainability of the cash income. If the source of the income varies widely from period to period, there is more chance that in a low-income period the business or person may default. So a Company and a person with steady income can get better credit ratings then those with volatile and uncertain income.  How does a lender deal with this aspect? Simply they increase the interest rate payable so that on average across a portfolio of similar credit risk some default others pay. On average the portfolio of loans delivers the yield the lender wants.

Throughout the history of stock trading, the focus has been on dividend payments. It has only been in recent years a prolonged focus upon trading for capital gains. There have been some speculative periods, where investors focussed just on capital gains from shares that had the promise of delivering great wealth in the future. Such as the Compagnie du Mississippi and the South Sea Company, both merchant-shipping lines which traded on multiples of around 100 Price/sales and over a year the investment gain was ten fold. The crash of these companies triggered London, Paris and Amsterdam market collapses in September 1720.  More recently the stock market crash of October 24th 1929, known as Black Thursday was when the Dow Jones Industrial average dropped 50%.  It also was a global stock market effect. The succeeding-years saw the Dow Jones drop-a-total of over 85%. This event preceded the great depression.

Bringing this together with some everyday examples. Debt costs less than equity so depending upon the quality of income and level of income, the most wealth is created by having the right mix of debt and equity.  If you invest in property, a high quality house in a high quality area will yield stable rent and stable capital appreciation – you can afford and will be able to get higher gearing that is more debt. A low quality house in a low quality area is likely to have a volatile rent profile and large cyclic changes in its capital value – you may be unable to get much debt unless there is additional external income guarantees. For instance retail banks in Melbourne, Australia in the last few years changed their mortgage policy from lending 80% to only 60% of City centre property valuation to protect themselves from downside asset revaluation. For instance, traditionally the listed public utility companies such as telephone, electricity, water and gas generated steady income and offered steady high dividends and modest capital growth. Whereas a high technology company paid no dividend and instead offered the promise of fast increasing growth giving income in the future and future dividends. The privatisation and deregulation of the telecommunication sector meant that new players using new technology competed against utility telecommunication companies. The sector became overnight “high technology” which resulted in disastrous decisions. Many of these companies core business are once more behaving like utilities.

Returning to the executive director, one indicator of the long term health and wealth of a company can be seen by simply looking at the financial statement in the annual report of a company and seeing the trend in the return on equity and the return on assets. If it is around 9% or under and with a falling trend then the historic investment decisions made by the Board of Directors have and are continuing to destroy shareholder value. If the level is around 15% and increasing then the Board of Directors have made fantastic decisions, which create value.  These figures need to be adjusted to reflect of the company is more like a utility with stable business or a high technology growth company. A company’s share price will ebb and flow based upon market sentiment.  At some time the collective equity market intelligence will understand the performance of the Board of Directors, via their historic choices of the debt & equity mix and their choices of investment opportunities. The equity market will then reward or punish the share price. Good quality companies with good governance and proven business models often deliver the best long-term investment performance.

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The essence of entrepreneurial innovation … simply thrive or die!

Paul A. Zaman explores the essence of entrepreneurial activity and innovation … or more simply thrive or die!

Entrepreneurship is key to survival and growth of both small and large business. Therefore the owners of a small business can regard themselves as the Board of Directors. Good governance is primary role of the Board.  A key aspect of corporate governance is setting the corporate goals, setting the strategic direction and steering the business towards achieving those corporate goals. Within this framework there will be products and services to be sold by the company that brings in cash. The amount, sustainability and steady growth of the cash income must exceed the cash used by the business in innovation, producing and selling the product. When the cash income exceeds the company’s cash consumption, then the strategy is creating shareholder value. In a large or small company this is easy to see and monitor, by watching the cash flow or even more simply the ebb and flow of the bank account balance. If the cash at the end of a period, as shown say by your bank account balance for a small business, is growing, you are doing well. If it is decreasing period by period, then you are losing money, which means destroying your start up investment funds and destroying shareholder value. Monitoring a business really is that simple.

Perter F. Drucker suggests that any business must be entrepreneurial and that this means doing well in just two things, innovation and selling.

Corporate Governance is focussed at Boardroom issues so what is the connection between corporate governance and entrepreneurship?  The role of the Board is to look after shareholder interests of whom the key interest is to increase long term shareholder value however increasingly with the eye to the triple bottom line of caring about shareholders, society and the environment.

Investors assess a company’s ability to increase shareholder value based upon just three aspects. The first is: the formulation of a sound strategy, the execution of the strategy, and the measurement and monitoring to keep on track. The second is having the right mix of debt and equity investment. The third is the operational and financial track record of the management team.

If we expand upon entrepreneurship being the two aspects of innovation and selling. We understand that the company must have a strategy that leverages innovative technology to develop and deliver innovative new products and services. These products and services must meet a customer demand at the right price and performance level such that customers recognise the value and buy the company’s products and services. To achieve this the company must make profitable product & service sales. If this does not happen then slowly yet surely the company will have less and less cash in the bank and DIES. Therefore the Board in being entrepreneurial, or simply directing the business for survival must embrace innovation and sales.

The Board must understand the business model, understand the products being sold and the customer segments buying the products. On a regular basis, monthly or quarterly the Board must receive a report that provides enough detail so that they can see and understand the selling and cash flow story. If the cash flow is too lean, then questions must be asked about the quality and performance of the sales function and/or the quality and performance of the products. The products could be sold into new markets or additional new products are needed for the existing markets. It is the CEO and Sales Director to execute the sales plan, yet the Owners and the Board of Directors must provide a check and balance to ensure the sales and cash are being delivered.

If new products are needed then innovation is required. Innovation needs investment cash, takes time to achieve and has risks attached. Modern R&D and innovation is focussed upon serving known and perceived customer needs. Very little R&D activity is now focussed upon fundamental research that may or may not have any commercial applications and payback of the cash invested. Even the largest of companies like Hewlett-Packard have very well managed R&D and innovation management processes. So what are the lessons for a small business? To manage the R&D risks and investment cash.

Again Peter. F. Drucker in his 60 years of business management wisdom can give us guidance. Innovation must be connected strongly to fulfilling customer needs and generating cash from sales. Drucker also suggests that innovation is best done with simple low risk products and then product development done with an active customer base and listening to their feedback. Yes every business must innovate, yet innovation without a careful eye on the bank account balance and real customers lining up to use your new innovative solutions invariably means disaster.

Is Drucker a 90-year-old management guru correct? Well a consulting firm, Innovaro (http://www.innovationleaders.org/) specialises in assessing successful innovation. They have demonstrated that the top innovative companies, that are innovation leaders, are rewarded with share market out performance of around 30%. The innovative leaders include corporations like: Virgin Atlantic, Toyota, Samsung, IKEA, Apple, Google, Addidas, Canon and Nokia. These large firms exhibit several common traits.

• A recognition that innovation is key

• Ongoing intelligence gathering and making insights about their marketplace, customers and changing the products to meet emerging needs.

• Active collaboration with customers and suppliers to innovate together.

• A simple approach to conceiving, qualifying, developing, and then quickly launching, new products.

• An innovation and selling organization with roles, culture and performance measures of success.

These successful traits can also be easily replicated by the smallest of business.

Back to the Board room. These traits can easily be formulated into a check list to be used by a Director or owner. Overseeing technology innovation does not need an understanding of the core technology, just checking that the development process is strongly connected to customer needs and there is customer involvement and feedback. No active customer involvement means additional unnecessary risks. The Directors or owner can ask meaningful and probing questions. Asking such questions, listening to the answers and making a considered response will influence if the innovative company thrives or dies.

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Entrepreneurial business, start young!

Corporate Social Responsibility – entrepreneurial business, start young!

Paul A. Zaman explores how triple bottom line reporting pays dividends for start-up and small business.

Some may be thinking that CSR reporting is only form multinational corporations and they would be wrong. A study in Canada of ten entrepreneurial businesses whom engaged in pro-active CSR reporting and strategy execution found that all grew strong and established themselves in the community. Start young and grow.

So how does an entrepreneurial company embrace and execute corporate social responsibility. There are two major global initiatives on CSR reporting, also known as triple bottom line reporting. The Global Reporting Initiative (GRI) sponsored by the United Nations and the Institute of Social and Ethical Accountability (AccountAbility) a not for profit institution set up in 1995. The GRI focuses on a process of identifying and reporting upon key relevant CSR issues. The GRI has a scheme for small business called High Five; AccountAbility focuses upon assurance, which means the process of reporting and the audit role. GRI has over 600 users and AccountABility over 300 users. Each is growing fast and is just the tip of the iceberg.  There are many more companies that use the guidelines yet do not formally submit reports back.

Dr. Anwar Ibrahim, the former Deputy Prime Minister of Malaysia was on 30th March 2006 appointed Honorary President of AccountAbility. AccountAbility says that Dr. Anwar is a prominent advocate for democracy, freedom, responsible business and the rule of law.

In my view, GRI has a focus on the financial, management and operational key performance indicators that make it easy for a business person to get great results. Whereas AccountAbility has a focus on auditing the process and dialogue with the stakeholders to verify the voracity of the data.  I like to stay focused upon creating shareholder value, which means the GRI five step process is a great starting point.

STEP 1: Get Board and Senior Management and owner sponsorship.

STEP 2: Using the business vision, objectives, strategies, activities and plan identify the stakeholders and map out the company relevant key interest areas.

STEP 3: Identify from the GRI the relevant type and nature of indicators to report upon that match to the key interest areas. Collect and collate historic data on these areas and candidate indicators. Identify the historic relevant management activities in these areas and determine what enhance and new activities could be done.

STEP 4: Verify data quality, with internal and external stakeholders. Engage in dialogue with key external NGO whom are respected surrogate representative of the external stakeholders. Set targets, management activities and accountabilities for the forward-looking years of the CSR. Write, finalise and distribute the first CSR report.

STEP 5: Collect feedback from the CSR report in areas of improvement in CSR performance. Plan the next steps of the CSR strategy and execution. Get recognition from management, staff, suppliers, and customers for the CSR awareness and commitment.

Developing a corporate sustainability report is like most business wide projects requires the support and commitment of top management and in a small business the entrepreneur owner and founder. Much of the information will already be in the company it just will be in different areas awaiting collation. Companies as small as five employees have created CSR reports.

An initial step is setting the context and significance of CSR reporting for the company. There must be real benefits in reporting such as enhanced reputation. increased profit, improved access to capital, improved access to information, new market opportunities, improved relationships and increased staff motivation. Reviewing CSR reports on other companies available at GRI or via sustainability reports on corporate web sites, in your industry and peers will help. This will help identify what are the major environmental sustainability and integrity issues and the social welfare and human rights issues affecting your industry sector and specific to your company. These are then listed, profiled and ranked for importance.

Like an annual report and financial statement there are a few guiding principles on what to report such as: materiality, comprehensiveness, inclusiveness and transparency. The quality and reliability of reporting is based upon reproducibility and accuracy. The CSR report is intended for senior management to make informed decisions about how to improve the CSR report, the economic benefit, strategy and execution plans. The CSR reporting must therefore also be timely and relevant for management action. Lastly, the process for data gathering should be auditable to demonstrate that the underlying information and report is fair and true.

One of the initial dilemmas is identifying whom your company’s key stakeholders are. Candidates include employees, family, community leaders, owners and equity investors, banks, financial analysts, suppliers, customers, end users, NGOs, labour associations, licensing bodies and environmental inspectors.  Once established map the key CSR issue areas to each stakeholder and rank the level of  stakeholder’s interest.

The next stage is dialogue with a representative set of stakeholders to verify their level of interest and understand their expectations for your business. This could be by a town hall meeting, one on one meeting or even an email questionnaire. With this feedback you can gauge if you are satisfying the key stakeholders interests.

The CSR report areas can now be formulated along three themes. The economic theme impacts typically affects customers, suppliers, employees and owners. The Environmental theme impacts typically on materials, energy, water, pollution, compliance, transportation, and your products and services. The social theme relates to labour practices and conditions, human rights, community at large, product responsibility.

The next step is to start collecting the core performance indicators. Again the GRI, AccountAbility and peer CSR reports will guide you into the selection. It is key to select the core indicators relevant to your business and your CSR areas of interest. Formal sources of information are the financial accounts, utility bills on water, electricity and waste quantity, staff turnover and sick leave.

The focus is on setting CSR objectives, strategies and action for improvement. In doing this like all planning iteration and consultation is required.

To capture the economic benefits the CSR initiative the results need to be published and disseminated. For small business this could be via notice boards, web page, newsletters, meetings, press releases, presentations, industry conferences. The communication method should be matched to the stakeholder groups identified to ensure you get your company’s message out there. Naturally the senior management needs to do a final review before distribution of the CSR report.

What small companies, 5 to 100 employees have done CSR reporting? All types such as advisory services like consulting, training and financial planning; business services like printers and waste management; hospitality, food and beverage outlets. Plus many large multinationals in every sector including Sony, Canon, Microsoft, McDonalds, Telstra, Heineken, Hewlett Packard, Lend Lease, Phillips, TNT, Westpac

Another benefit of the CSR Report is making corporate social initiatives more meaningful. Corporate social initiatives differ from corporate philanthropy in that it is aligned with the company’s vision and the CSR strategic issues. This means your company’s social sponsorship affects the key community stakeholders that your company is involved with and they recognize the power of your intention and commitment.

The CSR Report is a critical window on management’s claim of being socially responsible. It means that corporate sponsorship makes sense to all that witness it and becomes justifiable and sensible to owners and beneficiaries.

Alliances… till death do we part!

Why do businesses enter into alliances? Very simply because a single company does not have the critical scale and set of capabilities. So, when allied with a chosen partner, complimentary capabilities fill the gaps, and supplementary capabilities top up the business to the right critical level. Alliances are useful to any size of business to achieve the critical scale and set of capabilities needed for successful growth and competition.

Alliances usually simply mean a faster way of building capabilities for example building the desired product technology, product portfolio, or building distribution channels to access new geographic or customer segments, rather than via organic company growth. Sometimes alliances are used for joint R&D, where a company and research centre are in active collaboration.

Often alliance formation and success is made an analogy of marriage. First the courting, then the engagement, the wedding and honeymoon period, then the marriage ending in a divorce, or in successful alliances in death do we part?

Large companies understand the need for alliances whereas small companies are often fearful of sharing, or opening themselves to discussion and collaboration. Small companies would do well to remember the proverb, “A wise man surrounds himself with wise men”.

Alliances can encompass any short term or long-term collaborative agreement. Some people include customers, and call them strategic customer partners. Others include suppliers, and call them strategic supplier partners. However, this is not the real meaning of business alliances, but rather the over usage of business jargon such as ‘alliance’ and ‘strategy’ to make a ordinary or even poorly managed business relationship sound more grandiose and important, without actually accomplishing anything more.

The characteristics of a business alliance will have: Contributions from both parties in terms of funding, manpower, management team, financing, physical assets, intellectual property, sales and distribution channel access, and customer base access. The contribution mix and level of importance of each contribution element normally determines the alliance ownership level and the level of management control.

Alliances also usually last for more than one year or simply the duration of a big project. For example, a building developer does not claim his contractors and suppliers to be alliance partners, so why should any one else? By lasting more than one year, the alliance will straddle more than one financial year. Often the two partners will then set up a joint venture company for the alliance. By law in most countries, a company cannot enter into an alliance with a partner or an individual, but rather only another company. However, a partnership or individual can enter into alliances with one another. Therefore, an alliance will either be a co-marketing agreement, co-R&D agreement, pilot or a joint venture company. The crux is that the legal entity that is the joint venture has capabilities, resources and assets transferred into it. This means it has its own P&L and bank account. Therefore for substantial and lasting arrangements over a year, a subsidiary company is usually created, called a joint venture company.

Can a joint venture company exist without being an alliance? No, as the joint venture will have an article of association and board of Directors establishing goals and strategies, as well as the resources to achieve these goals. Therefore, firms often set up joint ventures without really realizing that they are establishing an alliance. The two firms entered into the joint venture to achieve critical scale and size. Each company knows that the joit venture fast tracks this and so they are likely to be working on building their own in-house capability. So at some point in time, a conflict of interest or parallel operations result, meaning the joint venture has fulfilled its purpose and be closed down.

Whereas, if the alliance is forged first then the joint venture, then it tends to be more sophisticated as the parent companies tend to be more sophisticated and understand the need for a long term exit. So, they build this in from the beginning therefore avoiding a value-destroying divorce. This means that there is a Board of Directors of the joint venture company for the alliance, which may have joint or rotating Chairmen, as well as Directors from the two companies. There will also be Senior Operational Managers from both companies.

So what is the difference between a joint venture and an alliance joint venture? The answer is only the intended timeframe for the sunset plan. Any company is set up as an eternal entity by law, including any joint venture. However in a strategic alliance, there is an expected sunset and in a good alliance a written sunset clause. This sets out how the joint venture will be terminated which may mean the dissolution of the company or perhaps the terms on which one equity holder buys out the other equity holder. Usually in an alliance, one partner already knows that after a period of time, when they have achieved the stated goals, they will either exit, or buy the joint venture. Alliances via joint ventures are not usually set up as ongoing joint business.

An alliance therefore needs to have a clear internal communication and conflict resolution process. If this process fails, then the situation is escalated to the joint venture Board with its predetermined policy on how to handle conflict. The final decision being dissolution of the joint venture on predetermined terms and conditions.

When searching for an alliance partner, the simple criteria for success are:
• Similar organization cultures or the creation of a joint venture with a new culture
• A sharing of minds at the Champion, usually CEO level and the forging of alliance goals, purpose and sunset
• Equality of power and capability contribution
• Equality of size: being roughly equal in turnover and headcount rather than a David and Goliath syndrome.
• Minimal hidden agendas
• Track record of successfully operating alliances
• Honesty, integrity and trust
• Alliance sunset clause

Why do alliances fail?
• One of the originating CEO leaves and new CEO does not like the joint venture or perhaps the other CEO
• Parties fail to contribute their agreed capabilities and contributions
• Personality and culture clash
• Lack of a conflict resolution process resulting in eventual explosive eruption
• External product and customer market changes
• Growing Conflict of interest.

Small to medium size businesses can benefit the most from alliances, and yet they often do not even try. At the simplest level, sharing sales and distribution capability means that the customer can benefit from better service and a wider product portfolio. The companies can also minimize advertising and promotion and selling costs to reach the customer segment. Small to medium companies tend to have too much of a survival orientation and cannot risk trusting a third party. Often alliances at the small to medium business level are between family businesses for example the traditional Guanxi of business relationships between trading families, which has been in place for generations. Small to medium businesses also believe that they do not have spare management or operational capability to spin of into a new joint venture, yet they prefer to muddle though with a capability below critical mass of success.

A key component of alliances are the sunset clause when one partner is due to scale down and exit, or perhaps the joint venture is agreed to be dissolved. It is human nature, and so corporate culture, to perhaps cheat when the sunset clause timing is imminent. The honesty, trust and integrity was a firm bond at the beginning and middle, however towards the sunset cracks often appear. In the final sunset stage, it is critical for both companies to have renewed focus on the integrity of the joint venture rather than focusing upon asset and benefit stripping.

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The three-minute elevator chance to fund your idea!

Corporate Governance: the three-minute chance to fund your idea

Innovation needs investment funds. Entrepreneurs need investment funds. Entrepreneurs inside corporations, sometimes called intrepreneurs need investment funds. The process of research, development, product design and finally commericialisation is the end-to-end innovation process. The costs are incurred before the sales revenue is earned. Entrepreneurial spirit is required in all businesses. P.F Drucker thought that innovation and selling where the two critical management processes and capability for survival and growth. So how does an entrepreneur get the investment funds?

The venture capital (VC) approach is the easiest to describe and the principles apply everywhere. A VC wants a single page summary followed by a 5-page business and financial plan. If after they screen this plan they are still interested they will ask for the management team to present themselves and explain the: business model and franchise; management team and track record; and investment opportunity. This presentation needs only the last three minutes as they are assessing the calibre of the management team and understanding the investment opportunity. VCs are usually polite and let the entrepreneurs have 30 minutes and waffle. If the VC is convinced on the calibre of the team, then they may discuss the investment opportunity. VCs contrary to popular belief is in reality an administrative screening process of thousands of candidates ideas to find a few good ideas that have investment merit. The Entrepreneur needs to help the VC get through the process. Get the single page submission correct first time and know what and how to present the key points in three minutes.

In the corporate world the investment approach is similar it is just not such a transparent and simple end-to-end process. Many well-run corporations have a step-by-step investment process. First a good idea is approved by the department head.  Then it is submitted into the investment process, which is often led by the finance group. Different levels and depth of submission are needed at the feasibility stage, production planning stage and the final commercialisation stage by the sales force. Often there is a investment process committee chaired by the finance group, with representatives from corporate strategy to review and approve strategic fit, sales to review and approve fit with customer base; production to review and fit with production capability and so on. However even in a large corporate, a chance meeting with the CEO in the lift, gives the chance to tell the story and jump several steps in the investment process.

Any entrepreneur seeking a discussion with a business investor must describe in less than three minutes, one minute for a journey in a lift, the following: What do you want? What will you offer in return? What is your business model? Why do you have a great franchise? What is your management team track record? When do I get my investment return? Again for simplicity lets demonstrate this by considering getting attention and investment funds from a venture capital or business angel investor.

Entrepreneurs always think they have a great business idea and are baffled why they cannot convince others, apart from family and friends whom are duty bound, to investment in their company. Even more difficult is to get a discussion with a venture capitalist and the mythical business angel. Entrepreneurs need to understand the investor’s viewpoint and get a powerful first conversation.

Venture Capitalists have preferences for types of deal, company size, industry and investment approach. VCs invests a pool of private equity funds. They also often syndicate investments with other VCs to share the risk by taking smaller bites.

A business angel is investing their own private money, sometimes on behalf of a small private partnership or syndicate,in areas they can understand and are interested in.

The first step is to find the investor. The second step is to ask yourself if your idea fits their investment profile and selection criteria. If not move directly to the next, otherwise your time wasting reputation will move ahead of you. VCs follow a standard process starting with the one page initial application format. Get it and follow it. Business Angels tend to be more individualistic.

The best way to get an investor interested is to get referred by a friend whom has a professional connection to them. In California, this traditionally approach centered on a couple of coffee shops in San Jose and Stanford Village California. Often over early morning breakfast after jogging. This is California VC guanxi. Asia entrepreneurs will not have the guanxi so the office front door is the next best option. For an entrepreneur seeking a discussion with an investor be prepared to describe in less three minutes the following areas.

What do you want?

Be clear about how much money and when you want it. Be specific on any other business capabilities like alliance partners and distributors you want. Say if you want hands on involvement by the investor and even help in filling management team gaps.

What will you offer in return?

Be specific in what you will be offering in return such as interest, equity stake, share of franchise fee, consulting fee and royalty.

What is your business?

Describe what your business is about from your perspective. Then describe the business from the customers’ perspective of features, benefits and value adding. Specify how your product serves the customer’s need in terms of: a solution, solution options, and getting into action.

Why do you have a great business model and franchise?

Describe why you have a great business franchise, which means you will be better positioned than current competitors and new entrants. Describe your competitors and their products and their likely reaction to your product.

What is your management team capability and track record?

What is the capability and track record of the entrepreneur and the members of the management team? What gaps are there and how and when will you fill the gaps?

That’s all there is to the pitch.  The investor will be judging the calibre of the team first and the opportunity second. Always be convincing, committed, expectant and passionate.

Remember, the investor does not invest in business plans, ideas or technology they invest in people. Investors, in the west favour entrepreneurs whom have a track record of starting business, even if the businesses failed. In Asia, failure is often seen as losing face. This is a poor perspective to hold as a VC as untried entrepreneurs increases the risk profile of the investment over tired and failed entrepreneurs.  The profile of a good entepreneur is being committed, passionate, flexible, innovative, balancing risks, visionary and having multiple back up plans. The investor will first assess if the entrepreneur and the management teams values in the above and then functional and customer know-how in terms of innovation, financial control, marketing and sales. Do not be surprised if a condition of investment is to strengthen the management team, which will mean sacking a founding buddy sooner or later.

The investor needs to know the investment return, the downside and upside investment risks, and the exit approach. He will be assessing if the business can be sold to a trade investor or listed on a public security exchange. Investors tend not to lend money that is the province of banks, rather provide equity, which they later sell for a capital gain. Often the starting point is a mixture of equity plus debt with the debt later converted into equity or just repaid at the investor’s discretion or subject to pre-determined conditions. So do not be naïve and ask to borrow money and return it with a good interest rate, or ask for equity and suggest you will buy the equity back from your share of the profits. If you do not understand why this is naïve do not even attempt to raise investment funds.

The investor will also be looking to see if the entrepreneur is wedded to the business model. Passion and commitment is wanted but not ownership. After all the investor wants to sell the business to a new owner either a trade investor or the public via a listing. Many new listings of companies have the founder and majority owner stay on for too long and the listed company fails after a few years. The new owners will choose the Board of Directors and streamline the old management team and the founding members. Many great investment deals never get started because the founding entrepreneur and family members are fixated on owning the business. This approach largely precludes venture capitalists and business angels from getting involved. A true entrepreneur is motivated by starting and growing a business, and recognises that they will exit themselves when the business has out grown them. Professor Henry Mintzberg a expert in business organizations and strategy suggests there are six organization states, the first being direct supervision, which is suitable for small business, family run or entrepreneurial. To grow into a large organization different organization states and capabilities, processes, and structures are required. Simply, entrepreneurs have skills, capabilities and passion for creating a business and not for managing a large business.

Good hunting

Paul A Zaman is the CEO of Qualvin Advisory, would you like to know how to create sustainable wealth and become a good corporate citizens  email: pzaman@qualvin.com or visitwww.qualvin.com.

Social Enterprise Leadership – ancient wisdom needed!

Social Enterprise Leadership – ancient wisdom needed!

A social enterprise is an innovative business vehicle focussed upon creating sustainable wealth and at the same time being a great corporate citizenship, a focus upon people, plant and profits. The business is more complex and so it follows the governance and leadership most also be more sophisticated. Around 1760 the industrial revolution and industrial economy started in Europe and spread across the world. The focus was upon managing physical and financial capital for internal efficiency often with an internal win and external loose outlook. In the 1970’s the knowledge economy started with widespread computing and communications technology. The focus is on managing human capital.

Corporate governance creates wealth by setting a clear mission, vision, goal and strategy. The business operations may actually be simple yet setting goals across people, planet and profit makes the governance more complex and the operational leadership more challenging. Very simply the governance and leadership capability and style of the industrial economy or even the knowledge economy are unlikely to suit.

Dr Stephen B. Young of the Caux Round Table suggests that there are five types of capital to manage: physical, financial, human, social, and reputational capital. This is based upon far reaching research on best business practices and ethics across USA, Europe, Australasia and Japan. Therefore we have a hint that industrial economy and even knowledge economy management styles and capabilities are insufficient to manage all five core capitals, specifically social capital and reputational capital.

The Caux Round Table proposes that key governing principles for sustainable wealth creation must include the following two aspects: Living and working together for the common good, mutual prosperity, with healthy and fair competition; and Valuing human dignity and the sacredness of each person, be they employees, customers or stakeholders.

Although law, regulation and commercial market forces can go a long way towards ensuring these principles are adhered to, it is really determined by the mission, vision and values and conduct set by the Board of Directors. External forces can drive compliance. It is an internal Board choice, that determines the tone, spirit and behaviour.

Recently, Dr Deepak Chopra has been leading workshops on the Soul of Leadership, awakening us to the possibility that there are seven different types of leadership each more appropriate in different times and situations. In our new economy, where we must value all five types of capital, we require different leadership style then the aggressive and arrogant win-lose styles of the last 50 years.

Dr Jane Houston, is a guru on human potential and has been working with the United Nations to develop new leaders for our modern time. Her own mentor was Margaret Mead. She calls this style of leadership, social artistry. Social artistry is about ancient wisdom. Modern management seems to believe that there is nothing to learn from our ancient forefathers and fore mothers. Modern business and especially social enterprise shows that we can learn a great deal from our ancient lineage.

A group focussed upon developing human potential is the Society of Jesus, known as The Jesuits. They have over the centuries contributed to personal development and contribution to society, far larger than their small numbers.

Lets also, look at the history of commerce.  The first corporation limited by shares was the Dutch East India Company in 1602. Prior to that time the only expansive commercial vehicle was partnership law. The earliest body of limited liability partnership law suitable for trade is the Qirad in Islam. It is likely that the Qirad originated in the Arabian Peninsula with the Arabian caravan trade. It later became one of the most widespread tools of commercial activity. It was an arrangement between one or more investors and an agent where the investors entrusted capital to an agent who then traded with it in hopes of making profit. Both parties then received a previously settled portion of the profit, though the agent was not liable for any losses. From AD650 to AD1250, the Golden era of Islam the commercial world was largely driven by such trade partnerships, one of the key reasons why Islam spread across the world.

Partnership law was adopted in Italy in tenth century. Even today most accountants and lawyers use the partnership vehicle for business. This vehicle has also been updated in recent years to offer limited liability partnership business vehicles. The partnership vehicle is alive. The partnership has as owners the leaders and operational managers and expectant staff that one day they too may become partners. The partnership often has a paternalistic approach. Hence, just looking at 200 hundred years of industrial age contemporary management thinking ignores 1500 hundred years of ancient commercial wisdom.

We have a wealth of management knowledge on managing human capital, physical capital and financial capital.  Social enterprise leadership will therefore also need to draw upon more wisdom about managing social capital and reputational capital, which intrinsically is about people and the planet. The old administrations and government agencies based upon managing less than all five are like the dinosaurs under pressure of extinction.

Social enterprise and the governance and leadership of the five types of capital is one of the transformational trends of this period of time.

Paul A Zaman is the CEO of Qualvin Advisory, would you like to know how to create sustainable wealth and become a good corporate citizens  email: pzaman@qualvin.com or visit www.qualvin.com.

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Champions of the World!

Corporate Governance – Champion of the Earth

By Paul Ali Zaman

The Global business summit for the environment, “B4E” was held a couple of years ago in Singapore and recognition was given to the winning “Champions of the Earth”. One champion was Al Gore, for his work and some say crusade, for all of us to take action to prevent and reverse the effects of global warming.

Global warming is a very high profile topic and has steadily caught the attention, hearts and minds of many people. Al Gore’s movie – -An Inconvenient Truth, won two Academy Awards and he won a Champion of Earth award from the United Nations Environment Programme (UNEP).  The movie has helped create global warming awareness, however the issue of global warming gases such as carbon dioxide, methane and others is just one of many pressing environmental and governance issues. Others include, the scarcity of fresh drinking water, over-fishing of the oceans, destruction of bio-diversity due to the logging of rainforests; and avian bird flu; and electronic e-waste.

A key source of Global Warming is Carbon Dioxide gas from burning organic fuel. In broad terms 2/3 of the environmental carbon dioxide gas is created by the industry and 1/3 by agriculture and farming. In a little more detail it is the power generators and heavy power consuming industries that are the biggest culprits. Factories creating cement from line, bricks from clay, aluminum and steel from ores, all have large furnaces and are heavy fuel users. Internal combustion engines in cars, trucks, trains, ships and airplanes are also culprits. Carbon Dioxide is a global warming gas because it affects the atmosphere. The airline industry only contributes about 2 to 3% of Carbon Dioxide gasses and yet these millions of tones of gas are discharged at 30,000 feet. Carbon dioxide is heavier than Oxygen and Nitrogen that make up air, thus discharging it at 30,000 feet has a much greater impact. Rachel Dodds, Director of Sustaining Tourism and Associate Professor at Ryerson University, Canada suggests a 5 time impact multiplier, indicating that air travel contributes to around 10 to 15% of carbon dioxide based global warming effects. Rainforests and algae in the oceans are two main bio-systems that consume Carbon dioxide and give out oxygen. The destruction of the rain forests therefore removes the “lungs” of the earth and the land is then used for rearing cattle for human food. There are around 1.4 billion cattle today, about half of which are used for dairy production and half for human consumption, each animal creating huge quantities of methane and carbon dioxide. Methane is 23 times more potent in causing global warming than carbon dioxide is. Our modern excessive eating habit of meat thus greatly contributes to ill health and global warming gasses.

Water scarcity and excessive consumption are also a key environmental issue. An average individual in a western household uses 50 litres of water a day of which only 3 litres is needed for drinking. A hotel guest, on an average, consumes 500 litres of water a day. “Households use around 10%, industry around 15% and agriculture around 75% of water resources in the world”, says Anders Berntell, of the Swedish International Water Institute. Water consumption in agriculture is very high, because of wastage – Growing crops to feed beef cattle, which could be used directly by humans. Cattle are heavy consumers of water, and each kilogramme of beef mince requires around 30,000 litres of water according to Johnathon Buckley, University of Michigan. Growing inappropriate crops such as rice is another wastage. It requires 5,000 litres of water to yield 1kg of rice, great to grow in monsoon areas, not so great an idea in Australia!

So the clear picture is that our modern fast-living lifestyle is a major contributor to global warming. Therefore consumer awareness, interest, desire and action are a critical part of the solution to global warming. Citizens must choose their goals and define actions that are their personal governance role and commitment.

There are many things we can do at an individual governance and corporate governance level. Energy efficiency is a dramatic one. If USA became energy efficient in line with European best practices they could save around 30% of their energy bill. This would immediately mean that as a country they achieve the reductions in global warming gas as highlighted in the Kyoto Protocol. Simple energy savings initiatives include:

• Insulation of windows, doors, floors and ceilings in buildings
• Ensuring air-conditioning and environmental climate control set at a healthy 18 to 26 degrees temperature, matched to the external natural climate and season.
• Convert to modern fluorescent energy saving light bulbs;
• Adopt energy efficient home appliances and cars, engines
• Unplug unwanted appliances.

Who is the villain in all of this? Well, we are, The Consumers. Our defense is that we are not educated in the facts and in what we can do. Once we are aware, many of us will choose to behave differently as consumers, employers and managers of business operations. Citizens of the world are increasingly remembering that they are stewards of the earth, keeping the earth vibrant as a legacy for their children.

The weakest link has been our Governments. Al Gore tried to promote the Kyoto Protocol and environmental issues however this was one factor a few years ago that contributed to his political election failure. Global warming and environmental issues have a real cost. One that is currently not visible or borne throughout industry and certainly not passed on to the consumer. Many politicians just want to be elected and green issues appeal to environmentally aware voters, however there is a larger negative political impact of legislation that will drive consumer prices up.

In October 2003 The Pentagon published a report saying that global warming was now a national security concern. A Washington insiders’ poll in February 2007 found that 95% of Democrats and only 13% of Republicans agreed with the statement “it has been proven beyond reasonable doubt that the Earth is warming because of man-made problems”. Global warming skeptics have been promoted in the past by corporates like Exxon Mobile and newspapers like The Australian, The UK’s Daily Telegraph and Canadian’s National Post. At the Global level the United Nations has a huge role in nudging and prodding developed, developing and under-developed countries to be wiser and to adopt good environmental governance practices. Conversely there is need for political grass root developments. Seven Northeastern USA states have gotten together to form a regional greenhouse gas initiative. Such state level initiatives will apply pressure on federal government to support Kyoto. In the UK, the government commissioned a study called the Stern Review which led to the electorate sensitive prime minister, Tony Blair saying, “we accept we have to go further than the Kyoto protocol”.

Let’s leave the last words to the Governor of California, Arnold Schwarzenegger who supported an aggressive global warming emission reduction law and declared, “We simply must do everything we can in our power to slow down global warming before it is too late… The science is clear. The global warming debate is over.”

Paul A Zaman is the CEO of Qualvin Advisory and to know how to do a core business makeover for survival or going green email pzaman@qualvin.com www.qualvin.com.

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A Personal Philosophy – Standing Tall instead of Activism

Over the last few years, I have realised that it is important to have a personal Code of Honour. Part of a Code of Honour means having goals & objectives and being 100% committed to them. From this, mindful action follows and the desired results automatically occur. 

Creating lasting wealth for all, that is people-planet-prosperity is now a central theme to my beliefs, values and identity. This is a HARD subject as it is about playing BIG and creating tangible lasting wealth, in fact a legacy for everyone’s grandchildren … and they will be proud!

BuckMinster Fuller the legendary visionary, social master planner and architect talked about precession. If we fulfill our true being, just like all of nature does, then the universe and nature rewards us with abundance.

Fulfilling our nature is about standing tall and walk-the-talk. Greatness comes for action @work @home @leisure.

Activism implies there is a fight between two opposing views. Views are often historic and frozen. In any fight there is chaos and destruction. Activism was a an appropriate action in the past. I no longer believe activism is valid today.

Standing tall simply means you hold a current view and are willing to share that view with others, yet honouring and respecting alternative views. A wise coach and mentor is always open to new ideas and revising beliefs and views, and they grow wiser. Standing tall needs as much courage, in fact more than being an activist.  The source of energy for standing tall is love and compassion. The source of energy for an activist is anger and injustice.

Change comes about when there is tension. Tension is the creative energy of change. Passion is the energy of change in human beings. Be passionate about the things you love. Be willing to take mindful actions. Be willing to help others. The picture shows a volunteering trip to Cusco, The Sacred Valley in Peru giving mountain children new sandals during a a feliz navidad celebration party.

and for more about actioning your natural talents and your brilliance visit http://www.EarthGateGlobal.com

Whistle Blowing!

Corporate Governance – Whistle Blowing

Increasingly there is the need for a Director or employee to blow the whistle on suspected illegal activity and undesired ethical and moral conduct. Whistle blowing protection law exists in many countries. Paul Zaman discusses “ how do people react” and when is whistle blowing a rightful action.

Whistle-blowing – a. a person who informs on someone engaged in an illicit activity (Oxford Dictionary) b. (origins) Sir Robert Peel, “Peelers Or Bobbys” police force in 1829 issued with a truncheon and a whistle to summon help to apprehend a criminal c. (film) The Whistle Blower starring Micheal Cain, 1987.

Good corporate governance involves making great decisions and choices that create long term value for the shareholders, society and the environment and choices that you are pleased to live with. Increasingly this means that each Board of Directors must consult their ethical compass. Likewise, each individual in any choice they make in the life towards achieving their life goals must consult their ethical and moral compass and be able to sleep at nights with that choice.  Sometimes as an individual we become aware of a transgression of law of the land or a major conflict to your ethical and moral compass. This often results in a dilemma – staying true to your compass and what you know is right or compromising.

In business today, as a result of incredible telecommunication advancements such as the Internet, email and mobile phones, very few places of the world are not connected in seconds. This creates great opportunities and challenges. No longer can we hide behind the tyranny of time and space, and hope that out of sight means the issue goes away or that by the time it is known, you will be long gone or at least out of the firing line.

Therefore good governance today is about changing culture to reflect the higher levels of good corporate citizenship that many people across the Earth are expecting.

Whistle blowing has become very popular in recent years with Government agencies providing more than protection with actual payouts in cases of recovered fraud money.   If you wish to be a whistle-blower each time your morality is offended, you will never hold a job or a relationship. The moral and ethic aberration should be huge so know what sort of aberrations are out there so you can calibrate your own ethical and moral compass. Most of our affronts are not extreme and should be dealt with through normal complaint process. The majority of cases are low profile and receive no media attention.

Some people see whistleblowers as martyrs to the cause and others view them as glory seekers.

Although most countries have had laws protecting whistle blowers for many years, these were often a patchwork of law. Perhaps part of a new environmental law protecting employees whom reported environmental pollution breaches to a government agency or a law which enables government officials to report upon senior officials or government department mal-practice. In recent years arising from major whistle blowing events such as Frank Serpico the first USA police officer to testifying against fellow police officers on corruption; Sherron Watkins in Enron; Harry Templeton challenging Robert Maxwell in plundering the company pension fund, Dr Jiang Yanyong forcing Chinese government to reveal details about SARS. Andrew Wilkie, an Australia intelligence officer whom asserted in the run-up to the 2003 Gulf war that their internal reports do not support the claims of weapons of mass destruction. There is now a lot of protection for individuals to take action and be assured that there is some level of protection. The UK’s Public Interest Disclosure Act 1999 is internationally recognized as a benchmark in public interest whistle blowing.

The Board of Directors often creates a whistle blowing policy and passes it to internal audit for the role of running the whistle blower hot-line dealing with concerns.  Mr Idris Jala, the new managing director of Malaysia Airlines (MAS), announced in 2006 that it had drawn up a whistle-blower policy. The policy is aimed at creating a safe way for employees to register knowledge of fraud and other illicit acts. MAS’s policy and the Whistle-Blowers Independent Committee were a first for any Malaysian company.

Internal and external audit of a company’s financial accounts is also a form of legitimized and process driven whistle blowing. The audit purpose is to ensure many things, including integrity of the information and highlighting internal process and control weaknesses for correction before an event occurs. Therefore the need for whistle blowing only occurs when the internal processes and control mechanism do not work or are out of date or the values and culture of the company is out of touch with modern expected values and codes of conduct. Often, the Chairman, CEO or a responsible individual will say, when the disaster surfaces “ why did not anyone tell us”. Use the internal processes and ensure that decision makers are in the know.

Whistle blowing is also suited today to a campaign to change values and beliefs and make a huge difference to the world such as global warming, genetically modified items, renewable energy, abuse of labour in sweat shops, systemic pollution, protecting the ocean and the rainforest.

Whistle blowing dos include:

• keep calm, stand back and review the broader picture, issues and outcome before you act;
• remember you are a witness supporting informed decision making, not a antagonist and not a judge;
• and remember there may be an innocent or good explanation for the event and outcome witnessed;
• use help lines & hot lines, and join a co-ordinated group and campaign.

Whistle blower do nots:

• become a private detective or vigilante;
• use whistle blowing as a way of venting a personal grievance;
• bear in mind that the situation will be uncovered at some stage and then you will have to account for your in-action.

Paul A Zaman is the CEO of Qualvin Advisory, would you like to know how to create sustainable wealth and become a good corporate citizens  email: pzaman@qualvin.com or visit http://www.qualvin.com

Many ways to create lasting wealth!

Many ways to create lasting wealth!

Who else wants to make a positive social impact?

Who else wants to make a positive environmental impact?

Now you can feel good as the company you invest in, contributes and makes great profits!

Some of you may be feeling that these are mutually exclusive themes. I intuitively know that these are mutually inclusive.  Buckminster Fuller, the renowned social engineer talked and lived his life applying the universale laws of the universe, including the law of precession. The gyroscope and how it can balance on a needle’s point and seemingly defy gravity is the law of precession in action.  In the same way if we have you or your company with a code of honour focussed upon making a positive social and environmental impact. The energy of your motion and the energy of the universe work together. Which do you prefer, using your own energy to achieve a big goal or allowing the energy of the universe to work for you?

In late July 2008, people gathered in Kuala Lumpur, Malaysia to discuss Corporate Social Responsibility.  The distinction at this conference was the strong focus on investing for good returns finance rather than philanthropy, NGOs, activism and rhetoric.

The sustainable wealth of a company is going to be determined by how well social and environmental trends are captured as opportunities. Whether the company is small or big and private or publicly listed. That means allowing these trends  to drive goals, form strategies and direct actions.  Why would a person claim that?

The United Nations has sister initiatives to the familiar Millennium Development Goals (MDG), UN Global Compact www.unglobalcompact.org and the Global reporting Initiative (GRI).  A lesser-known initiative is the UN Principals for Responsible investors www.unpri.org, based in London.  Their research shows that there are over 180 Socially Responsible investment funds in Asia with US$34billion of assets under management.  James Gifford, Executive Director of UN-PRI shared the principles, which included: use environmental, ethical, social and governance issues in investment analysis, active equity ownership and encourage corporate disclosure.  UN-PRI has over 170 financial services sector sponsors and a mandate to promote the principles in the financial sector, corporate and governments.

The World Resource Institute www.wri.org based in Washington, researches social and environmental issues.  They have a Capital Markets Research arm.  They provide complimentary research to security houses like GoldmanSachs. The objective being to provide institutional investors with insights in how social, ethical and environmental trends affect the quality of future cash flows and hence valuations of listed companies. GoldmanSachs was reported as having 12 fulltime research analysts in London researching social and environmental issues and valuation impact analysis.

Social and environmental trends are drivers affecting sales, costs and risk to cash flow. Ms Hiranya Fernando, WRI demonstrated how these trends could be used sector-by-sector and even better at a specific company level to identify opportunities and threats.

Another two groups are the World Business Council for Sustainable Development www.wbcsd.org centred in Washington and the UNEP Finance Initiative www.unepfi.org for innovative financing for sustainability, based in Switzerland.  Talking with Cheryl Hicks a manager at WBCSD, she said they found that sustainability reports are not generally valuable for the investment community. Investors want to hear only sustainability performance material about the core business and in investor friendly language.  Investors also want to have a management discussion and analysis on core business issues on the same quarterly reporting basis as financials.  Which investors  had these views?  Goliath investors like Hermes, Calpers, Innovest, Allianz, Pictet and HSBC investments.

The overall perspective at the conference was optimistic and win-win. Social and environmental issues are opportunities not threats. They create innovation and new products and services. They create the tension for re-engineering the processes and substituting resources to ameliorate the issue and at the same time reduce costs.

The training given by myself, Paul Anthony Zaman, focused upon Qualvin Advisory’s research findings from CEOs of Singapore and Malaysian listed companies. The research findings show that the Board of Directors are aware of social and environmental issues.  Yet they had to deal with these as operational cost centre issues. They lack corporate goals and strategies that have social and environmental goals built in. They also therefore do not have a corporate wide investment decision-making framework and the necessary justification of achieving corporate goals.

Cheryl Hicks also suggests that, capital markets will fully reflect sustainability issues when a significant number of investors deem it financially relevant, and the information is fed to the investment community in a timely, consistent and meaningful manner.  Currently there is a lack of common templates and techniques for valuation analysis.

The content conclusion drawn is that an increasing number of long-term institutional investors are aware of and are using social, environment land governance analysis in their ongoing investment decisions.  Listed companies have yet to adapt to being able to make corporate wide investment decision-making.  Listed corporate are generally therefore unable to do quarterly reporting on social and environmental goals, strategies and investments.  These issues are operational and not yet corporate wide strategic issues.

The context conclusion drawn is that the universal law of precession is not fully being used in business. Corporates are focussed upon old-fashioned goals for financial and physical capital based upon the industrial era’s philosophy of a shortage of capital and resources. Corporate goals need to include managing capital of human resource, society and reputation.

Lets now bring this down to the individual level and the small enterprise.  Action you can take today.

• As an owner of a company let decision-making include social, environmental and governance issues.
• As an investor, choose your investments wisely and ensure they create social and environmental wealth.
• As an employee ensure that you approve of their social, environmental and governance policy and track record.
• As a consumer, be more sophisticated. Understand the social and environmental track record of the company you will support by buying their products.

Be wise, lever the energy of the universe to create wealth for you and leave a great legacy for your children.

Paul A Zaman is the CEO of Qualvin Advisory, we provide “smart support for busy executives” to Want to have help creating a Grey2Green2Gold action plan? then email: pzaman@qualvin.com. www.qualvin.com.

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