Wednesday, 25 September 2013

So Nokia, what now?

With the dust starting to settle and the Proxy documents becoming available the situation with Nokia starts to look a little clearer.

Public opinion in Finland is starting to turn against the deal.  Elop's massive bonus and the board's evasive and inaccurate statements have been massive PR own-goals.

If I had the money and the contacts I would start immediately to do something about it.

Nokia's 'market cap' has jumped back up to about $20B so a hostile takeover is going to require up to $15B but I still think it can be done.

If it were orchestrated in concert with a shareholder revolt it might need to gain substantially less than the 56% of the voting stock needed to guarantee victory.  By promising to dilute the stock by 67% after a successful takeover I could keep the share price from escalating too substantially and force the big US funds that are backing Microsoft to take a painful bath on their investments.

I understand that between them they controlled about 15% of the stock when they parachuted Elop into the board.  That's an investment of $8.5B which is currently worth less than $3.5B.  That's clearly a long term strategy that is predicated on Microsoft successfully acquiring Nokia's phone business and on the rump of Nokia being worth something when they cash out.  If Microsoft get nothing and I can drop Nokia's share price down to $2 in the process that investment might be worth barely $1B.  They'd get it all back eventually but they'll be suffering in the meantime with $7B of capital locked up where they can't touch it.

What would I do with Nokia once I was in control?

Well sacking the board would be an obvious first start.

I've talked at length here about how I would restructure the company but I think over time I would break it up into a number of smaller companies.   A swarm of interconnected and interdependent companies each run by partners with a stake in their individual company.  I might consider using that mechanism to bring ex-Nokia employees back into the fold.  Jolla, QT and Vertu would be excellent examples of potential partners in a resurgent Nokia ecosystem.

I think I've explained how I would prefer to incentivise staff elsewhere but with Nokia I've run some mathematical models in my head.  Without real numbers about remuneration inside Nokia its hard to be precise but I think a minimum salary of €30k would be a step up for the average employee and a maximum of about €80k would be a substantial step down for the best paid executives.

I would start by introducing six pay bands rising in €10k steps from the minimum to the maximum. Everyone would get a pay rise except those that were already earning more than the maximum who would be getting a pay cut.  The savings at the top would easily pay for the increased costs further down the totem pole.  I imagine we might lose quite a few of those taking a pay cut and I would be able to sincerely wish them well where ever the ended up.

Over the first year I would slowly introduce a Reputation system that determined an employees pay grade.  Employees would rate each other and those ratings would determine an employees salary.  The bottom half of the company would be paid the minimum, the next quarter would be one grade higher and so forth and so on.

Staff employing essential skills that they had invested time, effort and personal capital in would be remunerated for those skills as if they were Capital.  The company would purchase the use of that skill with a Bond that paid a pro-rata dividend that reflected the market price of that skill.

Obviously all of the above is open to substantial revision depending on actual circumstances.

As to products Nokia might well be in a bad way.  There almost certainly exists a contractual obligation to continue using WP as the primary OS for at least 18 months but I don't think that is a substantial hurdle.

I have been thinking a lot about brand image, for both Apple and Nokia, quite a lot lately.  It seems to me that a great many people already have substantial amounts of these company's hardware products lying around gathering dust.

They are popular brands because they are good products.  I think Apple's walled garden approach is not doing them any favours in the long term, as all monopolist activities naturally must, and that there is a better way.

I think by cultivating an 'open hardware' paradigm a great deal could be gained.  By openly permitting and assisting the modifying and upgrading of obsolete hardware by the customer community one would not only gain goodwill but substantial free advertising.  If a ten year old handset can be seen still working and performing some interesting and valuable function the brand can only gain from that.

This could easily be extended right into current handsets.  One could offer handsets for sale with WP pre-installed, as contractually stipulated, but offer easily installed, fully warranted, free images of other operating systems to customers that wanted them. Meego, Sailfish, Firefox, Tizen and Android could all be made available at little or no cost.  One could document and open up all the hardware to allow enthusiasts to easily modify their own handsets, at their own risk, and thus become the preferred hardware platform of the enthusiast community. By giving the customer the freedom to make the device their own they make the brand their own.

And then there is the patent portfolio.  Here I don't really know.  What Nokia still has and what obligations they are irrevocably embroiled in is unclear.  What I would like to do is create some sort of open-source patent licence that created a community of innovators who shared ideas and technology and competed on implementation.  The faster innovation occurs the better it is for everyone.

The idea that an innovator is best served by excluding others from the market so that he might extract the maximum amount of profit from that market for the longest possible period is wrong-headed on the face of it. Real wealth is created by driving costs down, to drive prices down, to enlarge the size of the potential market.

All I need is a white knight with access to the right contacts or capital.  Or both.

Tuesday, 3 September 2013

Liberate Nokia - Ain't that a bit ambitious?

I've just published this as a curiosity for the time being.  Things have changed this morning.  I may delete it, alter it or put up some sort of follow-up later.


The thing is that as a species every wasted man-hour of effort represents a measurable number of unnecessary untimely deaths.

In prehistory that represented starvation and exposure.  To some extent things are not so bad now but in vast tracts of the world people still die from hunger and disease every few seconds.  And for the want of what?

A few dollars for clean running water, proper sanitation or effective mosquito nets?

How much of these things are available in the third world is directly proportional to the size of the global economy.

The most effective thing we can do to improve the situation is to work together to make that global economy bigger as quickly and efficiently as possible.

So we should dream big.  Really, really big.

What I think I have here is an idea that will transform the world economy.  My real aim is to quadruple the size of the global economy over the next fifteen years.  So I have no intention of wasting any time mucking about building things up from scratch.

When I realized that I didn't want to waste time I started casting about looking for a good opportunity to field test the idea and work out the kinks.  When Nokia sprang to mind I was amazed at just how good a fit it seemed to be to what I had in mind.

There is a certain amount of poetic justice to the idea of course.

If one assumes that the idea of a Hybrid Stock Company is sound then engineering a takeover of Nokia makes a gigantic amount of sense.

Any company that one applied the Hybrid Stock model to would immediately start to perform better and produce more profit but a company that is currently trading vastly below its potential, and historic track record, due to mismanagement, would have a much more dramatic and obvious rebound.  One with discontented Shareholders and whose Market Capitalization was substantially less than the value of its balance sheet ought to be an easy target.

If Tomi Ahonen is to be believed there is nothing bad about the idea of buying Nokia.  The only possible fly in the ointment is the complications of the stupid deal that assigned many of Nokia's best patents to a Canadian patent troll at the behest of Microsoft.  Even if those patents are lost I still think Nokia represents a valuable prize that possesses assets that are of value to just about every player in the mobile space.

Restructuring Nokia also would give me the opportunity to demonstrate other principles that I believe that are important in business and that are at the heart of the current patent wars.

Open source is one of the best methods of managing intellectual property to accelerate innovation we have yet developed as a species.  Closed paradigms are universally damaging to technological advancement.  To what degree that is true is variable ranging from disastrous to merely dreadful.  Greek fire anyone?

I don't think the present patent system makes any sense at all.  Even if the entire process is disclosed in the application any competitor would naturally lag behind the inventor in implementation by so long that the inventor should have little trouble achieving and maintaining a dominant market position.  The only thing the present system seems to achieve is to delay iterative improvements to the original design from other inventors and allow the patent holder to extract monopoly prices for longer than perfect liberty would entitle them to.

I am convinced that the patent system could be used in precisely the same way that the GPL uses the copyright system.  With a large enough pool of good enough patents it ought to be possible to force everyone to surrender their patent 'weapons' and to compete on merit.

As things stand Nokia represents a dreadful threat to the open-development model should the proprietary monopolists get their hands on its assets.  Similarly Nokia threatens the proprietary monopolists in the exact same way which is likely why it was chosen by Microsoft as its latest technology 'partner'.  Should it fail, which seems very likely at the moment the assets are likely to become a thorn in the side of open-development for decades.

Which all means higher prices and less innovation.

Progress requires that Nokia's assets be protected and used to defeat the patent monopolists.

Sunday, 1 September 2013

Hybrid Stock Companies - What's this all about then?

The Hybrid Stock Company is a proposed alternative to the Joint Stock Company.  It is designed to actively compete with Joint Stock Companies for the $600 Trillion that is currently invested in the world's stock markets.  If it is, as much fitter than Joint Stock Companies, as I believe it to be, it will drive them to extinction.

The idea behind Hybrid Stock Companies is an examination of what really makes a Company tick and who really has a stake in its success.

Traditionally we see Companies as being split between two diametrically opposed interests.  The Workers and the Management.

This is not only a simplistic model but one that, I believe, does not even accurately represent the way modern Companies are organised.

In the old days the 'mill owner' was the guy that ran the show on a day to day basis.  He was the individual that supposedly exploited his workers for his own profit and twirled his moustache of an evening over a giant pile of gold coins.

Of course, as I have already discussed, modern Companies are not run by their owners.  They are run by mysterious Boards of Directors that are as often as not chosen by other Boards of Directors, that are chosen by other Boards of Directors, etcetera, etcetera, all the way down.

Becoming a Company Director involves joining an unofficial club whose membership requirements and procedures are completely mysterious.  It is a closed shop with admittance by invitation only.  Competence is not a requirement.  It is probably actively discouraged.

This group is parasitic.  It has no right to its position and it actively damages the health of any organisation it has attached itself to.

Traditionally we view the real owners of a Company as being its Shareholders.  This is right and proper, without the Stock invested by its Shareholders the Company would not exist.  Stock is excess income that an individual elects not to squander on frivolities but to invest in something that will make the lot of all mankind a little better.  Such wisdom and self-sacrifice should be applauded and rewarded with a share of the profits generate by that Stock.

But the Stock is not the only leg that a Company stands on and therefore should not be the only voice that should have a say in its running.

Obviously a Company cannot exist without the skill, dedication and experience of its employees.  Each employee is best placed to know more about his particular role in the Company and how it might be performed more efficiently than almost any other man in existence.

"It is naturally to be expected, therefore, that some one or other of those who are employed in each particular branch of labour should soon find out easier and readier methods of performing their own particular work, whenever the nature of it admits of such improvement.  A great part of the machines made use of in those manufactures in which labour is most subdivided, were originally the invention of common workmen, who, being each of them employed in some very simple operation, naturally turned their thoughts towards finding out easier and readier methods of performing it."

   Adam Smith - The Wealth of Nations

There is however a third, often invisible, group that companies owe their existence to.

Without an expectation that contracts will be honoured, without currency to exchange or without knowing that all your inventory won't be stolen overnight, it is very difficult to run any sort of business profitably.  The Rule of Law is the foundation that all trade is built upon.  Similarly without customers who trust you and are willing to trade their hard earned wealth for the product you supply no business can long exist.  A business exists solely because it benefits its customers. Not just individual customers but all of them as a group.  These are truisms that many companies lose sight of.  A business that thinks that it exists to maximize the profits of its shareholders has placed itself on the endangered species list.

An argument could be made that taxation and legislation give society as a whole a voice and a share of a company's profits but this assumes that government adequately represents the will of the people.  I think that is an assumption that the average man on the street would vehemently disagree with.

I propose therefore to give a voice and a share of the profits of a Hybrid Stock Company to society as a whole by forming a Charitable Foundation, probably governed as some sort of co-operative, that holds an equal share of the stock as the investors and the employees each hold.

The Foundation can be organised to provide benefits to society as a whole in such a way as that society wants and needs and to help govern the parent company the way its customers want it governed.

[Communities become Brands.]

One final element would be the Trustee.

Three groups would have equal say over the management of the company which ought to create a co-operative environment where the three groups operate symbiotically to create the greatest benefit for all.  Nonetheless there exists the possibility that these three groups may not initially be capable of co-operating effectively or may become unable to do so at various points in the future.  There also exists the possibility that the desires of two groups might align to the detriment of the other and of the overall intended aims of the Company.

Therefore the Hybrid Stock structure includes a Trustee to act as a mediator and arbiter. He holds 1% of the stock but instead of having a vote that stock has a veto and the power to wind up the entire company.  Thus the Trustee does not have any power to run the Company but he does have the power to prevent the Company going off the rails and to put an end to it if any governance problem becomes intractable.

This Hybrid Stock structure is encoded in the Company's constitution, the Memorandum of Incorporation in the UK, using carefully phrased 'Unalterable' Articles.  Once formed the Company's structure is set in stone and is safe from attack by external forces.