Watchdog⁺ refers to an agency that sits at arms-length from the funding agent⁺. It is only partially funded by the agent (investors also directly fund this agency). It is not staffed by individuals beholden to the funding agent for their livelihood. It makes decisions for the benefit of the funding agent, but also for the benefit of investors and owners of intellectual property⁺. Watchdog has independence, and provides a level playing field, so participants can agree to its decisions even if those decisions go against them.

Watchdog is a judicial function. It serves up decisions and adjudicates complaints.

• Decisions include advancements⁺, transitions⁺ and other major decisions affecting franchisees.
• Complaints include meddling, breaches of agreements or promises, cheating, ignoring or overriding decisions, attempts to skirt the rules, etc. (see here)

We centralize these decisions and focus on making them better, as measured by their contribution to financial results. The funding agent oversees Watchdog to ensure this improvement in quality.

Exhibit 1. Watchdog in the Franchise Structure. Watchdog sits within the franchise structure, and the Managing Partnership ensures the increasing quality of Watchdog decisions, but Watchdog is independent of influence on specific decisions by the Management Partnership. It has independent funding and an independent oversight committee.

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Funding potentially spans decades and we need consistency of rules. We need the rule of law. Watchdog provides this rule, ensuring:

• everyone has a chance to state their case
• everyone has the time and resources needed to prepare their case
• everyone faces appropriate consequences should they lose their case.

Watchdog ensures everyone follows procedure. There are rules for how decisions are made and you, the participant, must conform to these rules.

Watchdog is the ultimate source of share valuations. The prices of perpetual fund⁺ shares and i-shares⁺ are substantially determined by evaluations coming from within Watchdog.1 Watchdog also determines the revaluation of i-shares (see here). This is important in that i-share valuations are subjective, highly consequential, and closely watched by all parties. Watchdog retains the independence needed to avoid the taint of manipulation when setting these prices.

Watchdog is the decision agency. Major decisions affecting much of franchise operations⁺ are performed within this agency. These decisions are placed outside the reach and manipulation of those most interested in their outcomes. The Watchdog Agency is itself subject to watching. The funding agent tracks the effectiveness of Watchdog decisions over time to ensure they are constantly improving, as measured in the financial results of the firm. But the independence of decision making within Watchdog is closely guarded by parties from outside the funding agency.

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Editor's Picks for April, 2011

• 1. Independent Evaluation⁺ sits within watchdog and decides advancements, which sets the prices of i-shares, which partially determines the value of perpetual fund share prices, and which often affects derivative share prices.

Further Reading

Use of Allies in R&D Protection

Rules