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Browse articles from current and past World Class R&D home pages. Each page of this display shows one month's worth of home page articles (in reverse chronological order). Click here for a simple alphabetical listing of Home Page Articles


Newsletter – One Person, One Vote (Vol. 2, No. 3)

One Person, One Vote+

This month's we discuss wealth creation for Intellectual Capital+. Unpredictable R&D+, our target investment, is an extreme form of Intellectual Capital, in that we don't know when or how it will be commercially exploited.

These are for the most part intangible assets. Wealth creation within these assets is similarly intangible. There are no physical manifestations of these assets equivalent in value to the wealth they get assigned. Investors need to get into the minds of those creating the Intellectual Capital to appreciate the validity of this created wealth. This only really happens within a community of investors. And our community must consist of citizen-investors, each citizen having the vote (and only one vote).

The home page articles give the big picture. Editors' Picks provide many of the operational details. See Separation of Voting Rights from Cash Flow for an explanation of how the one person, one vote rule can be justified in a financial world filled with investors of every economic strata.

September 2011 Home Page


Breathing Life into Intellectual Capital

Background and Understanding

Location-location-location.

You intend to spend $1 million building a house. In our community it can be worth $10 million. In that community it may be worth $1 million. Our community provides the best schools, the best public services, the best neighbors, and a community block committee dedicated to maintaining and raising housing values for all its members. That community has terrible schools, no public services and neighbors with cars jacked up on cinder blocks in the front yard.

Community is a major contributor to asset value. It's a multiplier of asset value. Although with Intellectual Capital+ we have no bricks and mortar and we won’t have our neighbor’s sewage running through our streets, the comparison still fits. Intellectual Capital shares psychological attributes with real estate investments.1 Investors and investees learn to view these assets in terms of their potential as members of a nurturing, vibrant community.

De Soto, in his book The Mystery of Capital (2000), gives results from a global survey of asset values of squatter ...

  • 1. Unpredictable R&D+, our investment target, is an intellectual capital.

Community

Note: The September 2011 Roadmap, above, lists the many advantages of a community-based approach vis-à-vis its competitors (e.g., corporate or venture capital). This article provides more detail.

The value of fiat money+ and its acceptance in transactions emerge as properties of a dynamic economic system. The acceptance of fiat money ‘as a store of value’ comes from expectations, enforced by the legal and administrative structures of a society. paraphrased from Martin Shubik (2000). The Theory of Money.

 

Introduction

Why community? Because community in large part defines who we are. We set up the community for success and it fills with successful people. People buy into the prestige of a community. The same house in a lesser community sells for less. Our community is our brand. People join both for the reputation of our community and for what it means for their own reputation.

Community provides social capital+. People in a community care about the thousands of little details that serve to make and maintain the prestige of the community. They take care of their neighbors, both in their time of need and when they need correction. Social capital, caring about what others are doing in the community, becomes financial capital.

We sell shares into the community, not into individual properties. Investors care about the competency of the property management firm (i.e., the funding agency+). Investees care about their own properties and the

Citizens

Citizens and Unpredictable R&D+

We don’t just want any investors. We want our investors. We invest heavily so investors will stick around. We employ a perpetual fund+ to provide predictable funding for unpredictable R&D and we seek corresponding perpetual investors for that fund.

We seek citizens within whom we can build love of institution. These are investors who understand that taking care of the community leads to better results from all investments. Our investments are unpredictable enough. We don’t need more unpredictability coming from the investors. We need steadiness of funding, reasonably priced, and acceptance of the nature of unpredictable R&D. We get all this from citizen – investors.1

  • 1. The economy comes first. No amount of hand waving can make up for poor economic performance in any community. From a selfish standpoint we seek citizen – investors for three reasons 1) lower cost of capital, 2) reduced volatility in funding availability and 3) increased long-term safety for the funding agency+. All three of these eventually pay back benefits to investors. For example, a lower cost of capital allows us to fund more

Rules

Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies Groucho Marx

Introduction

Owners of intellectual capital+ (investees) need assurances they won’t get the financial rug pulled out from under them. This means they need to know by what standards they will be judged so they can proceed accordingly. We expect steady progress in our investments, but not measured in concrete steps. We are a goals-free, metrics-free society. Our measures are subjective by definition. Teams can work endless hours and still be judged ineffective. There are no checklists+.

Assurances for investees and investors can only come from trust in the system. We have no legal precedent, rules or government memorandums of understanding. Not for measures of effectiveness. Not for precedence in disputes. There are many checks and balances. But in the end investors and investees must learn to appreciate why our subjective, one-off decision mechanisms work best. Our system seeks the best answer for each case at hand, as independently adjudicated.

Common Law+

Ours is a common law society. To the extent possible we don’t let over-reaction to past wrongs hobble the freedoms of future generations.1

  • 1. For example, seasoned investors may ...

Cautions

We’re not building widgets here. Bribery, cajolery and punishment do little to spark the creative spirit (except perhaps in unintended ways). You get the best out of creative people by having them reach into themselves and pull out their own best. This applies as well to how we fund our work. How do we place that investment dollar so as to best elicit creative solutions from investors and researchers? Unfortunately creative people sometimes get a little too creative.

Below we discuss what can go wrong, based on a review of past wrongs in firms with missions similar to ours. We list specific dangers and describe precautions we have taken to protect against them. These are a sampling but are among the most important for our understanding.

Systemic Failures

Systemic failures can bankrupt an entire enterprise. Each investment within the funding agency+ may be doing fine, but management over-extends credit lines and places the entire enterprise at risk. Or, agency management+ picks a fight with the U.S. Department of Justice, and loses. Systemic risks are often precipitated in financial, contractual or regulatory failings. They are often due to ...

Valuation of Intellectual Capital

We as members of this Funding Agency+, in order to promote new meaningful employment for our host governments through commercial exploitation of cutting-edge research, constitute ourselves as an investment community dedicated to the reliable valuation of this research, making it readily accessible to the thoughtful analysis and placement of funds by investors.

Asset appraisal makes our funding approach work. We appraise intangible assets in a way that makes them accessible to rational analysis by investors.

Our investors can buy and sell these assets at any time via our perpetual fund+ (during open seasons). We perform independent, quasi-objective appraisals of the (intangible) assets underlying the perpetual fund, and this serves as the basis for extrapolation of fund share prices. Reliable appraisals permit investors to come and go with confidence. We do not commit investors for the long term.1 We could do this (it’s the venture capital approach) but these investors charge exorbitant premiums for use of their funds and they get impatient (sometimes resorting to

  • 1. ...although we provide many enticements to retain investors for the long term.

The Cooperative Solution

Our island nation comes alive! We breathe life into formerly dead Intellectual Capital+.

Introduction

We step back from this month’s recommendations (September 2011) and a new organizational form emerges, one similar in features to the cooperative+ model. The cooperative model has the following features (among others):

  • One person, one vote+, no proxies
  • Member retention and inter-generational continuity
  • Capital retention and reinvestment by members
  • Member education
  • Member participation in governance

This is an organizational form with over 100 years of business experience, academic study and documentation (a good thing). It has never been used for a business similar in scope and purpose to ours (a bad thing).

The funding agency+ has needs similar to a cooperative, but this does not mean it will become a full-fledged co-op.1

  • 1. The cooperative manifesto advocates democracy for the sake of democracy. We do not endorse that principle. We do not reach into the deeper realms of altruism and egalitarianism as espoused by the cooperative movement. Instead we advocate one-person, one-vote, no proxies as a means toward a more secular end: outrageous success enabled by ...