Long term focus on creating shareholder value
A world without entrepreneurs?
It is difficult to imagine a world without risk bearing entrepreneurs. I wouldn't be typing this blog on my Microsoft Surface, nor could be read on an i-pad or i-phone. You couldn't message your friends or upload photos on Facebook, nor could you drive a Ford. Some large shopping malls around the world that are a common feature of the retail landscape are owned and managed by Westfield, a company founded by Mr Frank Lowy, whose vision of a retail empire started in the 1950s in the outer western suburbs of Sydney.
Two giants in global sports over the past three decades - Tiger Woods and Michael Jordan - are synonymous with the Nike brand. But not without Philip Knight, who co-founded Blue Ribbon Sports in 1964, a predecessor to Nike. Can you imagine the global investment community without the irreverent and often contrarian views of Warren Buffett and George Soros? The wide range of low cost investment vehicles -= exchange traded funds - are available largely thanks to one of the world's largest asset managers, Blackrock, founded by Larry Fink in the late 1970s.
Entrepreneurship and the gales of creative destructive
Despite the importance of entrepreneurship, little is still know about its role in promoting economic growth. The success of entrepreneurs typically defies most scientific or systematic, which accounts for why they are absent from text book models of profit maximising firms. Joseph Schumpeter was one of the first economists to understand and emphasise the central role that entrepreneurs play in innovating and unleashing the gales of creative destruction.
Skin in the game
Much of the research on corporate governance focuses on the agency conflict that arises from the separation of ownership and management of corporate assets. Governance structures are designed to constrain the behaviour of the CEO and senior managers to ensure that their interests are aligned to those of the ultimate owners of the firm, shareholders. The active involvement of a founder as CEO and/or Chairman offers a potential resolution of the classic agency problem because they have a powerful incentive to maximise shareholder value over the long term.
Founders typically have tremendous 'skin in the game'; they have a large ownership stake or otherwise, the firm they founded represents their key legacy. Their significant financial and emotional investment means that founders are poorly diversified. Unlike many professionally hired CEOs, founders do participate in the managerial labour market; they do not view their founder control as a stepping stone to senior roles in other organisations. Founders are not subject to the short-termism that burdens professionally hired CEOs to manage their businesses to meet quarterly or half yearly guidance at the expense of more favorable longer-term outcomes.
Best of both worlds - Patient capital and liquidity
Listed global founder stocks deliver to investors the main benefits that listed equity and private equity have to offer. The benefits of listing include transparency, disclosure and liquidity without the myopic decision making that afflicts many non-founder firms. The key benefit of private equity is patient capital; a long term and opportunistic management focus on maximising shareholder value.