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Tuesday, August 05, 2008

Another story from the corporate world

I am currently visiting friends in Europe, and just heard another story on how a corporation is a machine without a soul, a train running at full speed on its tracks with nobody driving.

This is the story of a very successful entrepreneur who was looking for a cash out event, pressed by the early investors in the business (the "friends" who need to see a return on their equity at some point).

And it starts with a good event, a very juicy acquisition by a US Public Corporation.

And then after that, nothing is the same anymore...

And the big change really is that the acquired company becomes part of this big machine where nobody is responsible for anything, and nothing can be done without the scrutiny of somebody else, which makes it hard to have any decision taken:

- the board is supposed to drive the company, with the CEO to execute on the plan
- the board is supposed to represent investors


- when investors are a crowd of small stock holders who sometime don't even know they own the stock because it is through a mutual fund, then clearly they are not in charge and who represents them, and how this person was chosen, is anybody's guess. Maybe they represent the larger stock holders, or maybe they are just here because they belong to "the club".
- the board members have director's insurance, so the one thing that is clear is that whatever decision is taken, they are not directly at risk unless they did something really really bad


Back to my entrepreneur who is now a VP in this corporate world:
- he cannot do anything without providing piles of documents that will show that the board members have inquired about the matter,
- and then the real decision in the end comes from the CFO who will confirm whether the ROI can justify the investment,
- and this decision only comes after the lawyers have cleared the matter on the legal side.

What is also clear in the end, is that if anything wrong happens, he will take the blame because whatever he provided will probably be missing a "key" info that would have made the whole difference...

Unfortunately this does not fit the hypergrowth environment that my entrepreneur lives day in day out in his part of the business, and it really makes his life miserable.

And then customers are all confused too, because the deals that could be done before are no longer there: everything has to fit within the very narrow definition of how deals are made with the corporation, because it impacts revenue recognition and should comply with Sarbanes-Oxley. So letters are being sent, trust relationships are being damaged and ultimately the pipeline is being threatened.

At this point, you just hope that what started as a good acquisition is not going to turn into a bad deal because of the blindness of the system.

What's for sure is that whatever happens, nobody will really be responsible:
- the members of the board are doing their job
- the lawyers are doing their jobs
- the CFO is doing his job
- and my newly VPed friend is doing his job as best as he can within this context

If nothing comes out of this new association, everybody can blame somebody else, and the loosers (the stock holders) can only blame themselves for not unloading the stock earlier.

The amazing part after all this is that the system (public equity) still seem to be working from the high level prospective. The train is on track with no conductors, but I guess that as long as people trust that they are going in the right direction then the system holds...

For my part, I will stick to entrepreneurship, and my friend will probably not breathe this corporate air forever :-)