So given that, trust is the most important denomination in determining the value of a product or a service. And trust builds from consistent delivery on stated promises, which – in turn – requires the unwavering commitment from people with integrity and honesty….do you feel the slide coming?
1/ Why do many companies make promises they don’t keep?
I evaluate a lot of technology companies (about 60 this year alone, public and private) and most are simply lying about, or overstating (decibel marketing) the benefits of their proposition. Because the majority of potential customers and investors are ill-informed about the pros and cons of this specialized industry, technology companies can often get away with sneaky monetization strategies that take advantage of a lesser informed audience.
In Silicon Valley, “success” is often defined by how skilled you are in fooling customers and sucking up to aristocratic investors (to which few have access), rather than the authenticity of your proposition. A mediocre ecosystem is what still remains after the technology bust from 2001 in which self-proclaimed “serial entrepreneurs” and investors have been able to dodge real value creation and sell out short.
Not the VC model is broken, but many of the participants are. That noise is severely eroding the trust in an inherently sound technology industry. We need to enforce more transparency and hold ourselves to higher standards to restore the integrity and trust.
2/ Why do we allow short-selling on public company stock?
First, the performance of public stock says nothing about the actual value or outlook of a company, in the same way the dollar offers no guarantee of what you get for it. Public stocks are already a lousy interpretation of the actual performance of a company, as it merely echoes popular opinion (and not the company facts).
So, selling short is really a bet on performance of popular opinion and does nothing but undermine the trust in the longevity of a business and cannibalizes shareholder value. Quarterly earnings reports are an absolute joke as many companies move profits around, claim leadership in a market that is defined by themselves and reduce cost rather than improve their marketplace position in order to make quarterly earnings look good. They also force healthy companies to focus on often unpredictable economic aberrations rather than on their long-term and macro-economic leadership position.
The ability to sell short creates unrest and undue fear in a system that requires the opposite. Can you imagine holding the president of the United States accountable on a quarterly basis? That would be bad for our country (in most cases).
We should implement a predetermined holding period for the sale of stock, the expiration determined by the company and regulated by the SEC (which can also prevent some nasty insider trader deals) to build back trust.
3/ Why are some allowed to resell securities?
Reselling securities (which was illegal a few years back) based on finagled credit scores are perhaps the double whammy in the erosion of trust in public companies. Company credit scores that are maintained (and marketed) by commercial companies create profit driven scores and unrealistic prices (up and down) for securities. We simply need to stop the resale of securities and regulate the process of maintaining credit scores (both business and personal) vigorously and immediately.
Regulations do not turn us into a socialistic society, but the reality is that no economy operates without rules to protect trust. Free-markets require a basic set of rules to prevent a few bad apples to create insurmountable fear for the rest of us.
For the technologists amongst us: eBay deploys no less than seven dedicated servers to detect suspicious transactions that could challenge the trust in its free-market model.
In the same way we deploy rigid traffic laws to drive a car, should we deploy rules of engagement to protect our economic serenity. As long as we don’t dictate the destination of our travels or where we place our individual economic bets, we should be just fine in our support of a blossoming capitalistic society.
Trust comes from transparency, integrity and authenticity that builds real value, not from taking advantage of the ill-informed. So, building a successful company does not start with a new product strategy but with a leader who has the drive to win that is larger than his greed. Building disruptive products that truly improve people’s lives will yield personal satisfaction and trust that will keep customers coming back for more.
Trust is the only currency that matters, so stop squandering it.
- Price loses its value when money loses its trust. — Georges van Hoegaerden - February 20, 2015
- How to build a sustainable company - February 10, 2015
- Economics: A system designed to maximize personal freedom protected by the paradoxical rules of collective freedom. — Georges van Hoegaerden - February 2, 2015
- Capitalism without the deployment of operating principles that secure a meritocracy is an oligarchic system in violation of the most rudimentary definition of freedom we owe ourselves. — Georges van Hoegaerden - February 1, 2015
- Equality is a fantasy of unrealistic proportion. — Georges van Hoegaerden - January 21, 2015
- If no man is created equal, why then do we debate equal pay? — Georges van Hoegaerden - January 21, 2015
- CalPERS pre-empts asset allocation - January 21, 2015
- Homogenization of people is a bad idea, we ought to focus on the value of our differences, not on the rut of our commonalities. — Georges van Hoegaerden - January 14, 2015
- Only realism can breed justifiable optimism. — Georges van Hoegaerden - January 14, 2015
- The fix to improving asset management’s effectiveness lies in its reinvention, not in the optimization of its bloated past. — Georges van Hoegaerden - January 13, 2015