Enhancing Shareholder Value

the-carina-nebula-shown-below-contains-eta-carinae-a-massive-star-around-100-times-the-size-of-the-sunI had a mechanical engineer once who had an attitude disorder.  For some odd reason, he didn’t like getting impossible assignments.  Whenever I said, “let’s do this improbable thing….”  He’d give me his “moon rock” lecture.

The lecture goes something like this.  “So, you want me to build a system that fits in 3 cubic inches?  No problem.  All we need is some moon rocks.”

The idea is, if you ask an engineer to do something impossible, he knows he has to say yes, but, the only way he can turn the problem back into yours, is to specify a component that you have to get for him, that’s equally impossible to get.

The same problem exists whenever you’re thinking about acquiring a technology for some commercial purpose.  It’s very very important to keep an eye on the reason why you’re doing this in the first place.  If you lose sight of that reason, you may find yourself in a place you never dreamed possible.  One interesting example comes to mind.

A particular investor happened to own a cutlery factory in theU.K.  One of the key elements of cutlery is that knives that start out sharp, tend to get dull with use.  This is something that has been known since pre-humans pounded rocks with other rocks to make stone knives.  In fact, knife edge design may have been the first sign of technology that would ultimately lead to the show cases of our current technology like Twitter, Angry Birds, and Xbox.  This particular investor was looking for new metallurgy to bring back toSheffieldso he could produce longer lasting knives —  a clearly defined goal, with clear consequences if achieved.

There was aU.S.company that specialized in manufacturing metal toys.  This company had developed some special alloys that made their toys some of the best quality toys in their market.  The metallurgy in fact was very similar to that used in the cutlery, so much so that the investor came to visit the toy company to see if he could acquire or license the technology for his cutlery.

When he sat down with the CEO, they had a wonderful discussion, and everything seemed like they would come to an agreement, except for one minor “oh by the way.”  The CEO noted that one of the major shareholders in the company was trying to do a hostile takeover of the company, and if that happened, the CEO would be fired, and the metallurgy wouldn’t be available to the investor.

The only possible solution would be if the investor purchased a massive amount of stock so he could get on the board and prevent the hostile take-over.  In effect, to get the metallurgy, he had to buy the company.  Now investors are just people, and they tend to think that the key to any deal is the people, and he really liked the CEO.  Had we been in the room at the time, we’d have told the investor that it’s time to go look for some different rocks to pound.

So with his viewpoint adrift, the investor purchased the stock, got on the board, and discovered something about hostile takeovers.  People who initiate hostile takeovers are not discouraged by brick walls.  There is one absolutely sure fire way to get through any brick wall.  It’s called a stockholder suit.  So our investor from theU.K.found himself in aU.S.district court discovering that he had decreased shareholder value, and as a board member, was personally liable for the losses of the other shareholders since he obviously knew nothing about the toy business and belonged back in theU.K.pounding rocks to make knives.

Fast forward a few years… the investor survived the legal action, the company’s value did go up, and ultimately the company was sold off to one of the major toy manufacturers which made all the shareholders scream with joy.  There is one minor footnote which makes this story worth telling.  He never ever ever got his hands on the metallurgy.

Each of us knows the concept of “keep your eye on the ball”, but when the real world grabs you, sometimes we need that little extra voice to remind us, “why are we doing this?”

This article was written by Glenn Fishbine

Glenn provides deep technology, mentoring, and technical partnerships.. He has four decades of experience in a wide variety of technologies and has held senior & board positions on several technology companies.
He focuses on the technology footprint and strategic planning for new ventures and provides leadership and coaching to product and engineering teams.
He can be reached at;
Glenn;  glennfish@gmail.com
612 387 7536
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