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Roadmap 09/11 (click here to expand/collapse)

Below is the Roadmap for select September 2011 website articles. 

Provide Predictable Funding for Unpredictable R&D+

We Make R&D funding more predictable ...

At a lower cost of capital

With reduced volatility (i.e., short term predictability)

Without mortgaging {bracketing} the future (i.e., long term sustainability)

Investors can buy and sell shares at any time (during open season+), reducing premiums they would typically charge if we mandated long term commitments, and reducing a perceived need to 'meddle' into investments, demanding 'window dressings' to increase the sale price for the next investor down the line.    Valuation of Intellectual Capital+

Asset valuations (appraisals) are greatly increased due to membership+ in our community. They command premium pricing due to the financial strength of the community, readily available comparables, and tangible benefits of membership provided by the funding agency.    Community

We can have at our disposal (in the U.S.) additional tax benefits that comes from working with member-contributed equity.    The Cooperative Solution 

Long-term investor-citizens come to rely upon the predictability and sustainability of perpetual fund+ share pricing. This reduces premiums they otherwise would charge due to the unpredictable nature of the underlying assets+ (R&D-based ventures).      Valuation of Intellectual Capital

We have at our disposal a broader variety of cost-effective tools for investor retention+ when we work with our investors vs. anonymous / absentee investors.      Investor Retention

Investor-citizen familiarity with our financial safeguards tamps down on irrational investor fears, reducing the urge to sell off during generalized market downturns. Increased volatility in buying and selling forces us to recruit (and pay for) excess investors just to be sure we have enough funds to cover the sell-offs.        Investor Education

We build love of institution in our investors. Our client base will be thousands of thousandaires and only a few millionaires (when they start). We can't do this without investor referrals, outreach, testimonials and involvement in retention and recruitment programs.        Love of Institution

Investor-citizen participation in governance builds an appreciation of the complexities in our operating model (e.g., asset appraisal, the stabilization fund, derivative investment vehicles+). Citizens learn to acknowledge that knowing and doing are two different skill-sets. An idealized vision of the funding agency leads to unrealistic expectations of the funding agents. Our operating model reflects the uncertainties of investing into unpredictable R&D and we need a latitude for our mistakes from investors.      Investor Participation

Asset appraisal, upon which the perpetual fund share price ultimately resides, is performed in a way that tamps down on period-to-period fluctuations in asset value (across a basket of assets). Interim asset appraisals informs the share pricing used by investors to buy and sell during open seasons.    Valuation of Intellectual Capital

A mandate for an accelerating growth rate forces agency management+ to continually recruit new investors, who can then be recruited as natural proponents for safeguards put in place to ensure the future of the agency. For example, new investors will not want old investors to exit with the cash, gutting the finances behind our community services. We make this a first principle.    First Principles+

Mandatory reinvestment of interim winnings is the principle funding source for all our community services. It's so important we make it a first principle.    First Principles

Minority opinions (dissenters+) provide a wake up call to other investors should the future of the agency be placed in jeopardy by self-interested investors or outsiders.    Dissenting Opinions

A common law+ legal approach makes it difficult for today's investors to enact binding legal precedent that can be burdensome on tomorrow's investors. It's very difficult to know the best way to exploit unpredictable R&D. We don't write down rules, precedents or procedures that either 1) make it too difficult for future generations to experiment or 2) make it too easy for future generations to excuse their lack of creativity.    Common Law

Investor voting constructs+ make it difficult for today's investors to enact bylaws, rules and regulations that are binding and can be burdensome on tomorrow's investors.     Voting Constructs


Benefits of a Community-Based Operating Model for Our Funding Agency

Breathing Life into Intellectual Capital

Unpredictable R&D is a different kind of intellectual capital. Its exploitation requires creativity, experimentation, progress that is halting and tentative, and a willingness to throw away all the rule books. We do not pick a commercial direction and start marching. Ours is a wilderness criss-crossed by many overgrown paths, each with unique challenges, and only a very few taking us where we want to go. Consider it a mystery instead of a puzzle. There are many misdirection cues, incredible complexity of plot, and many, many plausible conclusions. The answer often emerges when we discard that which is right before our eyes: discarding yesterday's misleading evidence.

These challenges (opportunities) get reflected in the demands we place on the funding agency. We must better educate citizens (vis-à-vis anonymous or absentee investors) to appreciate the value of the freedoms we make available to our investees. Investees are freed from many arbitrary constraints. Our task is to make these freedoms seem dear to investors so they aren't tempted to take them away, with meddling or impatience. Responsibility for the defense of these freedoms must become a matter of personal mission for many of our investors.

Above we listed advantages of a community-based approach vis-à-vis a corporate or venture capital approach (our competitors). We take the best and discard the worst from these competing models. We have our investors (venture) but we allow them to exit at any time (corporate). The community-based approach also brings advantages not found elsewhere (e.g., love of institution).

Voting Constructs

Summary: 

Not all votes are created equal. We construct the vote in agreement with the importance of the measure being decided, and more care is taken for measures that are more consequential.

Perhaps the fact that we have seen millions voting themselves into complete dependence on a tyrant has made our generation understand that to choose one's government is not necessarily to secure freedom. von Hayek, Friedrich August (1960). The Constitution of Liberty

Introduction

One person, one vote+ is a sop to the masses. Politicians are expert at dividing votes across many competing interest groups in order to win elections. Politicians understand the ‘vote’ is an artificial contrivance, for example a weakly-held vote counts as much as a strongly-held vote. They also know what it takes to get the weakly-committed voter so disgusted they won’t even bother to vote.

We acknowledge the weaknesses of the one person, one vote rule, and leverage this understanding to improve outcomes in its use for our business votes. In our case we disentangle ‘the vote’ into its constituent parts:

  • on what is it we vote
  • what’s the best way to construct the vote to get the best answer on what it is we vote (e.g., taking into account future voters-to-be)

Individual investors, which include agency managers and investees, decide on what it is we vote. All that’s needed are a few signatures on a petition and an issue can be brought to ballot.1 To get the best answer is of course a very inflammatory statement: best for who as decided by whom?

Our in-house judiciary gets to construct the vote to get the best answer. Each voting construct will be tailored to the question at hand (discussed below). Proponents of a measure state their case for a preferred voting construct (e.g., simple up-or-down majority), but the judiciary has the final say. It is unlikely any vote in our funding agency+ will follow a simple up-or-down majority construct (i.e., we often will seek to lessen the influence of votes from ‘issue-illiterates’).

Voting constructs+ significantly affect the outcome of a vote. As an exaggeration, a requirement for unanimous agreement will kill most measures. Our judiciary knows and understands voting variables, design features used in the construction of a vote, and how these variables can swing voting outcomes. The judiciary is tasked with looking out for the best interests of the funding agency in its entirety, to protect its mission of providing predictable funding for unpredictable R&D+ over the (very) long term. This can be a very delicate balance. Denying a simple majority up-or-down vote risks voter insurrection and could collapse any future funding agency.

Not all votes equal

The astute reader will notice not all votes are created equal. As a simple illustration, any yes-no vote with a requirement for a quorum is automatically biased in favor of the ‘no’ vote – there is much greater leverage for ‘no’ voters to abstain and deny the quorum for the vote. We discard egalitarianism in that we often more highly value the informed voter (using a successor to the much-maligned literacy test). Every investor has the vote (one vote) but each vote will not always weigh the same as the next.

Table 1. Voting Variables. Shown are variables used to construct a vote, even in a community practicing ‘one person, one vote, no proxies’. Votes are power, which means being able to decide how and where the money gets spent. We abandon romantic notions of power at the ballot box (e.g., pure democracy, blind allegiance to voter turnout). Instead we construct votes to ensure the best answer for each measure from the standpoint of the long-term sustainability of the funding agency.2
Voting Variables (Illustrative)
  • Quorums
  • Informed Voter Tests3
  • ‘Earned’ Votes
  • Voter Intensity Measures
  • Primaries, Run-Offs
  • Black Box Warnings+
  • Waiting Periods (e.g., for voter education)
  • Yes-No, Multiple Choice, Ranking, Slates, Essays, etc.
  • Voting Districts, Blocks, Constituencies

There are many more voting variables, some of which can be quite esoteric. We frequently mix and match these variables. For example we may count ‘informed votes’ in order to determine a quorum, with the actual vote being a simple majority.

The Judiciary Decides Voting Constructs

He who decides voting constructs obviously has the most powerful vote – the best answer becomes a reflection of their opinions. We give this authority to the judiciary, but subject to very specific limitations:

In business matters we pay leaders to lead, to make tough decisions based on their experience and intuition. It’s not clear having ‘a majority decision’ provides better answers for many daily business decisions (e.g., choosing to deal with the loan sharks), so we give preference in the design of voting constructs to freedom of action by agency management+. We let leaders lead protecting them from the tumults of voter influence.4

Issues must distinguish between specific instances and generalizations. We employ common law+ in our court proceedings and try to avoid having legislated law overly infringe upon common law freedoms. We are not an institution of bylaws, rules, precedents and regulations. Legislated generalizations often hobble future generations.5 We use voting constructs to reduce the reach of legislated generalizations.

The judiciary is our best surrogate representative for future generations of voter-investors. We ensure balanced representation of today’s (vocal) voters with tomorrow’s (largely silent) voters (i.e., balancing the short term and long term needs of the funding agency).

The judiciary constructs the vote to get the best answer with reference to both the First Principles+ and the above limitations. We expect the judiciary to exercise this power judiciously, only deviating from majority rule where benefits to the long-term wealth or safety of the funding agency are obvious.6

Note the voting construct is independent of, but informs the design of the actual mechanics of the vote. Illustrative end-to-end voting procedures are shown in Table 2.

Table 2. Voting Procedures. Voting procedures are often designed to provide the information we need to continually improve voting constructs. This means we practice follow-up. Did we get the results intended from the outcome of the vote? How could we have constructed the vote to improve these results? The judiciary has access to anonymized voting records and investor profiles for use in this analysis.
Voting Procedures (Illustrative)
  • Identify issue leaders
  • Gather petitions
  • Garner a slot on an upcoming ballot
  • Negotiate with the judiciary on voting constructs
  • Educate voters (to include voting strategies)
  • Review and accept the actual mechanics of the vote (e.g., when to perform voter tests, if applicable)
  • Execute the vote
  • Count and announce vote results
  • Track and report purported benefits from the vote, as applicable
Dissenting Opinions

One person can make a difference in our funding agency. We love dissenting opinions when they are well-reasoned and well-intentioned. Unpredictable R&D is, well, unpredictable and we’ll never fully get it right. Even if we get it right, this doesn’t mean it will stay right. We need divergent opinions from many different minds, and even if we don’t act on them (i.e., the dissenters lose the vote, as will often be the case) we carefully nurture dissenters so they feel loved and remain committed to the funding agency. Often the right answer is found not in the blunderbuss, the raised voices or the thunderous applause, rather in the ‘tiny whisperings’.

We show our love for dissenting opinions in several ways. We capture a seat at the decision table for minority opinions, to allow those opinions to become much more ‘informed’ for when they exercise their dissent on future issues.7 We capture minority opinion during the voting process as a cross-reference during later analysis of purported outcomes from an issues vote. We value the rigor a minority opinion forces upon the thinking of the majority, even though by definition they rarely win the vote. We request the judiciary give dissenters special consideration in their voting constructs, even when their dissent seems at odds or peculiar when viewed from what is commonly thought to be best for the funding agency. A good dissenter is a rare and precious commodity, worth the extra effort to nurture and protect.

Dissenters, carefully nurtured, often provide a conduit for many investors whose nature it is to avoid conflict, but who never-the-less share minority concerns. Open up the ability for dissenters to gain a voice and you build a platform to catch peccadilloes while they’re still nascent, or conversely you set up a testing ground for new ideas. It is very hard for retail investors to maintain the level of attention held by agency managers and investees. Joe-investor has a day job to keep his attention and often finds himself at a disadvantage vis-à-vis insiders who do this for a living. Dissenters fill this gap. They raise alarms for all investors when special interests threaten everyone’s interest (e.g., today’s investors wanting to cash out, leaving tomorrow’s investors holding the bag).

One Person Can Make a Difference

…by February 1987, ZZZZ Best was trading at $18 a share on NASDAQ, valuing the company at $280 million. The company was a 1,030-employee colossus with offices across California, Arizona and Nevada. Barry Minkow's stake was worth $100 million, and he appeared to be the ultimate American success story.

Minkow heard KeyServ, the authorized carpet cleaner for Sears, was up for sale. Drexel Burnham Lambert offered to finance Minkow’s acquisition of KeyServ with a private placement of junk bonds. Although KeyServ was double the size of ZZZZ Best, the two companies agreed to a deal in which ZZZZ Best would be the surviving company. The merger would have made Minkow the president and chairman of the board of the largest independent carpet-cleaning company in the nation.

Then, almost as rapidly as ZZZZ Best rose, it fell, with disclosure of credit card fraud. ZZZZ Best overcharged a homemaker a few hundred dollars on her credit card, and Minkow ignored the woman's repeated requests for a refund. The woman tracked down several other people who had been similarly overcharged and gave a diary of her findings to the Los Angeles Times. The Times wrote a story revealing $72,000 in fraudulent credit card charges. The story, which ran days before the KeyServ merger was to close, sent ZZZZ Best stock plunging 28 percent.

Drexel abruptly pulled out of the deal causing the stock price to fall further. The merger was stopped only four to seven days before it was due to close. ZZZZ Best was forced into Chapter 11 bankruptcy. Two days later, the Los Angeles Police Department raided ZZZZ Best's headquarters and Minkow's home, and found evidence ZZZZ Best was being used to launder drug profits for organized crime. Source: Wikipedia

Investigative Press

We organize a dynamic and investigative press (the fourth arm of government) as a means of keeping our investors informed. This is not a mouthpiece of management. We pay an editor (one of our investors) and they solicit stories from investors, who are also compensated for their articles. We have far flung operations located at the whim of investees and we welcome extra sets of eyes to keep us all informed. We’re interested, of course, in uncovering any extravagant activities hinting at a breach of fiduciary duties. Hence the use of our provocative title, the Scandal Sheet+.

The Scandal Sheet publishes materials integral to the voting process: upcoming issues, voting constructs, pre-vote issue education, analysis of past votes, etc. We support an independent media dedicated to maintaining the relevance of one person, one vote, no proxy. Sure the media will be co-opted at times by parties interested in swaying votes. But we take this downside as the price for an independent source for educating investors about the power and importance of the right to vote. The Scandal Sheet drives home the message. Neglect the vote and others will (often surreptitiously) take away your rights and money.

One Person, One Vote

The above may seem like overkill for a business. But the lessons of the 2008 global financial meltdown and a long sad history of corporate scandals leads to the opposite conclusion. We need an active, participating citizen – investor community as our first protection for the long-term success of the funding agency.

For what are we voting? Mostly election of agency officials and guidelines on the purse-strings of the funding agency. Here’s a short list:

  1. We elect officials who inspire creativity
  2. We elect officials who can calm jittery investors in times of turmoil
  3. We elect officials who are good at organizational design
  4. We ensure windfalls+ go where they should
  5. We establish broad budgetary guidelines
  6. We do not meddle into the internal finances of our investments

It’s unclear Joe-investor would do a better job than a professional recruiter for 1) and 3). In the case of 2), if Joe elected the official, then perhaps Joe would give the official more leeway. But Joe may not be the one with the jitters.

It’s unclear Joe-investor would do a better job than a professional administrator for 4) and 5). Joe probably won’t meddle (6) but probably won’t know why he wasn’t meddling.

Joe-investor, in a straight up-or-down majority vote, would vote for inferior choices versus a business professional. Business choices do matter. In the final analysis no amount of goodwill will make up for poor financial returns. Yet we insist on one person, one vote, no proxy as our voting method.

Wealth springs from the minds of investors. There is no physical manifestation or at least not one with anything near the value we assign to the intangible assets. Investors trust in this wealth, and keep their money invested with the promise of even more unseen wealth, because of trust in the institution. This trust derives largely from trust in elected officials running the institution. It also depends on trust in the administrative structures put in place to keep officials competent and honest over generations. One person, one vote provides many thousands of small checks on abuses of power in agency management (or in groups of self-serving investors) which left unchecked would lead to a collapse of trust in our intangible wealth, and then to investor flight.

We use one person, one vote because it increases love of institution. The main competition is one-share, one-vote. Insiders often set up ‘classes’ of shares (voting vs. non-voting) and grab the voting shares for themselves to block interference by uninformed outside stockholders. Instead we improve outcomes from the vote of Joe-investor through the use of voting constructs (e.g., giving greater weight to the informed vote for issues where competence is an important factor). And, the more the sense of ownership, the more Joe-citizen wants to become informed through education and participation. We seek to bring outside investors in, to make them integral to the long term protection of the institution.8

One person, one vote (democracy) slows us down. But this is what we need in order to provide steady, predictable funding over decades for our unpredictable R&D investments.


Editor's Picks for September, 2011

  • 1. The campaign to outlaw dihydrogen monoxide.
  • 2. Simply placing all the money into a rainy-day fund, although it may seem to ensure long-term sustainability, will quickly teach both investors and investees to stay away from the funding agency. The intent is to balance the wants of today’s investors with the community-building needs for tomorrow’s investors.
  • 3. Providing voters with an option to complete an online essay (e.g., in 1200 words or less describe why you support / oppose this measure) is a powerful way to test voter commitment and understanding for an issue. Essays can be written or verbal and can be graded automatically, including assignment of a plagiarism score.
  • 4. The argument is that group-think never gets a better answer than that offered by its smartest member. On the other hand the group-think of a majority does have the advantage of giving satisfaction to the largest number of individuals. This in and of itself could be a key criterion of a ‘better decision’.
  • 5. ...and lead to lazy thinking on the part of judges. In the case of disputes they open the door to host-nation regulations or lawsuits (e.g., our bylaw stated this and they did this!).
  • 6. For example, the judiciary can place a Black Box Warning to alert voters of potential harm from an upcoming vote, without imposing their will by selecting a voting construct other than majority rule.
  • 7. Voting constructs are a proven way to protect minority opinion.
  • 8. We reverse roles and sell only vote-restricted classes of shares (e.g., Class B shares) during an IPO+ for an Investible Unit+, to keep outside investors from meddling.
Further Reading
Reba Tull
Offline
Joined: 03/30/2011
Too confusing for investors

You’ll spend too much time explaining why results from these convoluted voting constructs+ are different from a simple yes-no majority, and in the process you’ll lose the confidence (and participation) of investors. We not only vote for officials, we later have to accept the officials’ decisions, whether we support those decisions or not. When people don’t support a decision they look for a reason, any reason, to invalidate the decision. Convoluted voting constructs can lead to insurrection in these cases.