Investor: One who spends or devotes for future advantage or benefit.
Shareholder: One that owns or holds a share or
shares of stock.
The definitions say it all, but in case the point isn't
clear:
A shareholder really doesn't need to know anything about
their "investment" except how to contact their broker or open a
browser and point to their Ameritrade account. A shareholder need not have the
slightest clue about the industry, the company or its executive's competence.
And even when shareholders research the companies they invest in, they are
usually at a disadvantage to people "inside" the company. Why?
Because an increasing amount of the value of your share is in the form of
intangibles: customer good will, intellectual property and, most of all, the
talent of the employees. The average project manager or salesperson has
"information asymmetry" compared to the most savvy outside broker or
hedge-fund manager.
An investor, by contrast, is someone that is exchanging
one form of value for another. They are "invested" as in "they
are dependent upon the return." Perhaps it is a stretch, but I think of
shareholders as people owning paper that is important but not critical to their
future, whereas an investor is a person who is in there with the company,
deeply dependent on their success. Or, put in a way that Stephen Covey may like:
The interests of the shareholder and the company can be
independent of each other as long as the share price goes up, whereas investors
are interdependent on each other regardless of share price.
We can tie the previous rules about Talentism through
this rule:
Unleash
the Inner Entrepreneur - Entrepreneurs make better investors than employees
because they are more aware of the risk / reward concept. The rage during the
80's was to make employees into shareholders in the expectation that there
would be an alignment between the individual self-interest and the other
shareholder's interests. Unfortunately Adelphia, Enron and WorldCom (to name
just a few) showed that the "greater the alignment" (the more shares
someone owned) the more likely they were to destroy value in order to line
their pockets for the short term. Capitalism spoke of making employees into
shareholders. Talentism seeks to make entrepreneurs into investors.
Purpose
before Profit - A person can't fully invest in something that they
don't believe in. In order to maximize the possibility of the exchange, there
must be an alignment of purpose between the investor and the recipient of the
investment (i.e. the company).
Information
before Ignorance - A person can't continue to invest in something that they
don't trust.
Employees Are Investors
As
we discussed here, view everyone who is providing capital, goods or
services for the benefit of the business as an investor in your organization.
Determine what each investor is looking for as a return and make sure the
required return aligns with your organization's purpose.
Talentism says that when people are adequately and fairly
rewarded for the risk they take and the value they deliver they will continue
to invest at ever higher levels. Good for the individual, good for the company.
Talentism also says that all transactions between companies and investors will
be based on common purpose (they both seek to achieve the same meta goal) and
information symmetry (there are few if any "gotchas" in the
transaction).
In the age of Talentism someone who contributes their
ideas and time is more valuable to the organization than someone who gives
their money. So make sure you focus on rewarding value - focus on investors.
Next: HR before Finance
Forget about Enron and Adelphia--the greatest example of the failure of the 80s employee-owned company model is United Airlines. UAL can be compared to Southwest, which makes far greater use of equity as compensation, but whose culture is so much better that competition between them seems almost unfair.
Posted by: Colin Kingsbury | June 02, 2006 at 09:32 AM