Moral Capitalism

Greed is Good” is the catchphrase for a Canadian TV show on business starring Kevin O’Leary. When did business go so wrong?

First off, I’m a capitalist. I have a company and we employ people who perform valuable work which we bundle up and sell. The goal is to put in X amount of money and pull out more than X, hopefully a lot more than X. I engage in business for a few reasons, the major factor for me is probably for some control over my own destiny. If things are going to go poorly for me I at least want to know I had input all the way down. I also engage in business as an active investment strategy. Instead of putting my money into a faceless mutual fund or some oversea opportunity fund, I choose to take a risk in myself and my co-workers. I think we can outperform the average investment vehicle. I also want to keep my investment local and support my local community.

I’ve been lucky enough to have participated in two acquisitions of my former company, Bioware. We were first purchased by private equity firm, Elevation Partners http://www.elevation.com/ as a two studio deal. Two years later we were sold to Electronic Arts. Both times the acquisition worked out in my favor. Most employees at Bioware saw some return on both acquisitions. My perception of the deals might be a bit skewed, but I believe the thinking behind the initial Elevation deal was to build a new publisher. The first acquisition happened just as we were making a transition from Xbox and PS2 to XBox 360 and PS3. During this period, we saw a rough doubling of the input costs to develop a top quality game. My guess is the Elevation business plan was drafted in an earlier time and the new capital requirements caused them to shift strategies and they sold the company to Electronic Arts as a method to escape from the earlier strategy. Good on them for seeing the problems, making a call and changing plans. As well, hats off to them for ensuring employees saw a share of the proceeds.

I think Elevation is very atypical of many private equity firms. I think they honestly wanted to build a new powerhouse publisher and realized the offer from Electronic Arts for the studios was a better outcome. I’ve seen way too many stories of what I consider morally bankrupt business decisions.  The Bear Stearns real estate fraud comes to mind: http://www.sec.gov/news/press/2012/2012-78.htm

Reading about the practice of the leveraged buyout the private equity firm Mitt Romney participated in it seems again like morally bankrupt business.  http://www.bloomberg.com/news/2011-07-20/romney-as-job-creator-clashes-with-bain-record-of-job-cuts.html

I think the problem comes down to a willing blindness towards the broader impact of business decisions. “We make money for our shareholders” is the rallying cry. Behind this cry many companies make horrible long-term decisions and in my opinion, unethical decisions. “Growth” is the other major driver. In nature, everything reaches a maximum size and balances out. I think this is also true of companies. In my opinion, these companies that demand continual growth at some point are no longer an organism within an ecosystem, they become almost a virus or cancer, instead of living in the ecosystem, destroying it.

This isn’t really a coherent argument and I do not have a clear solution,  I’m just thought dumping at this point. But, I do think there are steps towards a solution. I think we as individuals, as consumers, as investors have a great deal more power than we might believe. I think by changing our behavior we can enforce broader change.

My personal goal is to be a more directed investor,  a more informed and deliberate consumer and to operate my business in a manner to benefit my partner and I, our employees and our community. I think it is high time we  told people like Kevin O’Leary his one liner “Greed is Good” is wrong, juvenile and not good business. I also think we need to call fraud a lot more often than we do. I think more high profile cases of morally bankrupt business decisions turning into criminal cases would go a long way towards cleaning up the world we know.

-Trent