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This is an earlier draft of what I was going to post to Groklaw.  PJ thought it was too long so I held it back and planned to rework it into a slicker form for this blog.

I'm not done with that and time has caught up with me so I'm posting this as a quick and dirty patch until I can fix that.


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I've just been watching Elon Musk again and am more convinced than ever that a bit of negative feedback from people that I trust is exactly what I need to progress.

Over the years I've become more and more frustrated with our impotence in fighting this 'war' with the entrenched vested interests of the content industry et al.

The fact of the matter is that all of our political systems are compromised by money. It shouldn't be that way but it is. Ideally we should just all wake up en-mass, change the rules and be done with it but we all know that is never going to happen.

So our other option is to beat them at their own game.

I know, I know, sounds ludicrous but hear me out. These guys, their MO is hanging on to outmoded business practices long after they have started to stink up the place. The business model of the monopolist has been demonstrably a losing bet since the days of Adam Smith. I think there is a better way to do business and not just in a moral and ethical way but in a more profitable way.

Economic activity is at its root one person serving others as efficiently as it is possible to do so. We all do what we do best and we trade with others to make the number of available man hours in the world stretch to the greatest possible amount of production.

All the waste and greed that we see in the traditional business model is achieving the exact opposite. These people are creating more profit in their particular ponds not by creating more wealth (increasing production) but by concentrating the existing wealth.

[You don't create wealth by maximising the amount you can extort from the market for the product that you produce. You do so by reducing the real cost of your product until your market is saturated and then you move your capital on to another product. Often reducing the real cost increases the size of the market so you never reach saturation and your profits just keep increasing the further you drive down the real cost of the product.]

A business that was not burdened by all this Executive greed and corruption would be much more profitable and here I begin to get to my point.

I think that a more efficiently structured business would be massively more profitable. So much so that it would be like pitting assault rifles against bows and arrows.

Don't get me wrong. I think that the current corporate paradigm is the greatest engine of economic production mankind has ever witnessed. I just think it is like Watt's first steam engine, vastly superior to what came before but not so good that we can dust of our hands, pat ourselves on the back and exclaim 'job-done!'

This is a story that has played out time and again in human history. The railways ate the canals for lunch, the airlines decimated the great shipping lines and Netflix destroyed Blockbuster. Sometimes the pre-existing business model puts up a stupid protectionist fight to hang on to its profits, sometimes it just disappears overnight without a trace and very, very occasional it adapts and comes out stronger than it was before.

So here is my point.

I think I have a very, very good idea for how to structure a business so that it will be immune to all the stupid corporate shenanigans that we are all so used to and that it will, indeed, make so much more profit than a traditional business that it will suck in all the oxygen so fast that the incumbents won't even have time to react before they become extinct.

Traditional companies are what Adam Smith would have called Joint Stock Companies so I am currently calling my structure a Hybrid Stock Company.

I've been working on it for a number of years but it is still mostly conceptual. It's based on a quirk of UK corporation law that I used a number of years ago to protect myself from a Sequestration that never happened in the end. (Long story, don't ask...)

At the time I was a good deal younger, more stupid, selfish, ignorant.. Feel free to fill in your own epithet.

What I wanted to create was a company that was bullet proof. It was mine, I had absolute control and no one could ever take it away from me. I think I succeeded pretty well actually. Which was of course exactly why it never went anywhere.

Who on Earth was ever going to share in my corporate vision of 'Me, me, me'?

The epiphany that I have subsequently had is that it is precisely that innate need to take control and to hang on to it for dear life that hampers humanity's ability to cooperate.

We all want to be in charge and therefore, as the late great Douglas Adams taught us, none of us should be permitted to be.

So I plan to take the legal structure I created and turn it on its head. Instead of ensuring that control stays in one place it will ensure that control never exists at all. By dividing control equally amongst multiple groups with competing interests and compelling them to cooperate to find the best outcome for all of them I hope to create a dynamic, agile and minimalist organization that is capable of transforming the world the way Watt, sanitation, running water, or Edison and Tesla did.

The way I see it there are three primary groups that have an interest in any particular company.

First and foremost, and I think the least recognized, is Us.

The whole of civil society is what permits companies to exist and is what they are intended to benefit. We create the Rule of Law without which none of this is possible, we enforce contracts, we are the market that purchases all these products and it is the improvement in all of our standards of living that all economic activity is intended to achieve. Traditionally governments extract rent for that legal infrastructure in the form of taxation. That system has broken down. Eric Schmidt is correct, Joint Stock Companies have a legally enforceable duty to maximise profitability at the expense of almost everything else and certainly at the expense of voluntarily paying more tax than is strictly necessary. I'm not proposing allowing government a voice in my corporate structure though, rather I am suggesting that a Charitable Foundation, similar to the Carnegie Trust or the Bill and Melinda Gates Foundation, should have a role in corporate governance and a share in the profits.

Secondly are the employees.

Lets face it, the lion's share of the effort invested in any company's economic output is invested by its workforce. Labour relations has been the central issue in the rise and fall of almost every major industry. Workers that are well treated and well rewarded are more productive. Workers are an invaluable source of innovative ideas for improving how a company manufactures its product and undertakes its business. Of course, workers that gain control of areas of the business they do not understand are liable to run the business into the ground. Unions were a major player in the collapse of the British car industry for example. Funnily enough I am convinced that the source of our present difficulty is the labour force running riot within our major companies. It's just a different segment of the work force this time around.

Thirdly we have the investors.

Investors supply the capital without which the company would not exist. They scrimped and saved so they could invest their excess income in enterprises that would improve the lot of all mankind. They are entitled to a reasonable profit on their Stock and a voice in how their capital is managed. They should not be entitled to total control of the enterprise. They are just not suited to running companies, they are not even qualified to select people that are. To quote Andrew Carnegie, who kept Carnegie Steel a private partnership right up to the point he sold it, making him the richest man in human history to that date, so that he could give the whole lot away;

'The ablest presidents are hampered by boards of directors and shareholders, who can know but little of the business.'

Investors have absolutely no business dictating how or by whom companies should be run. Investors that possess these skills should be encouraged to become entrepreneurs on their own account.

[My personal opinion is that this is the root cause of the current financial crisis. By devolving management of companies to poorly chosen employees, with almost total autonomy, investors created an environment that allowed inefficiency and corruption to explode unchecked in the upper echelons of all of our corporate entities. What I call 'management-bloat' is an emergent property of normal individual human frailties allowed to operate without intervention on an enormous scale. Without supervision Management just gradually pays itself more and more and does less and less and employs more and more of its friends form 'uni'. It becomes a bit like a tug of war competition, vast amounts of effort is expended but virtually nothing is actually achieved. Except perhaps finding ever more creative ways of concealing this from the shareholders. When this occurs in institutional investors it has a further emergent property of concentrating the control of vast amounts of our corporate infrastructure in the hands of a very small group of these employees, as voting rights become disassociated from the individual investors. Meet 'The Management', the new Unions. Hidden in plain sight, many times as powerful and ruining our economies much more effectively.

Obviously, confusing speculation with economic activity was what kicked it all off, but I think it was the vast amount of 'management-bloat' in our corporate institutions that made them vulnerable, they just didn't make enough profit to cope with a sudden down-turn.]

Investors deserve to have their voice and profits returned to them. Ironically by reducing their degree of control over the companies that they invest in.

Obviously I do intend to profit personally from my ideas and I don't necessarily trust myself to have created a perfect bullet-proof structure that will last for the rest of time. I'd also far rather be a Richard Branson than an Elon Musk, sorry Elon, if you ever read this, you're looking pretty tired and harried right now. I don't want to personally run all of the companies that I help create but I do want to be able to steer their course.

So my current plan is to set myself up as a Trustee whose job it is to mediate between the three control blocs and that possesses a big fat 'Nope' button and a kill-switch just in case things go off the rails. My thinking is that I would allocate the Trustee a Veto power, 1% of the stock and the power to wind the company up under certain circumstances.

Here's the thing though, I don't just want to talk about it or theorise on the internet. I want to implement it. Get it out there, see how it works and iterate, improve and experiment.

I also think it's reasonable to start big. It would be easy enough to structure a start-up using my model to use as a proof of concept but that is a long slow process that requires one to also have a good idea for a start-up. However I don't think that there is any reason not to be as ambitious as possible. It takes many years to build up a billion dollar enterprise, why not short-cut that process and restructure an existing business that is failing?

There are a great number of vulnerable multi-nationals whose investors might look kindly on any possibility of rescuing capital that is going down the tubes.

Even losing two thirds of your investment is better than losing all of it, particular if you have already suffered substantial losses that you have not yet realised and you are an investor looking for long term growth rather than speculating on short term fluctuations.

By partnering with long term investors, like pension funds, one might launch a hostile takeover that, by publicly promising to substantially dilute the stock, would actually drive the stock price down or might even cause it to collapse.

To this end I have started work on the legal documents necessary to create a Hybrid Stock Company, I've batted around a couple of mathematical models of how best to pay employees and selected, what I think is, a really good target for this type of restructuring.

Nokia.

On the surface, and as far down as I've been able to dig, Nokia seems like an ideal choice. It is at its core a solid, sound company that only three or four years ago was a world leader, one that totally dominated a hugely important market segment. It has however been run into the ground by exactly the sort of idiots we're all here to try and do something about. Its stock price is something like a seventh of what it was four years ago but its balance sheet is now worth twice its market-cap. The vultures are circling and the long term investors, like their own pension fund, must be getting pretty jumpy. It looks like the people that drove Nokia to this point are happy to drive them into bankruptcy and to pick up the pieces for a song. Which means the current shareholders will lose everything. Unless they act.

Nokia also represents an unexploded grenade for everybody profiting from open-source in the mobile space. They have a vast portfolio of hardware patents that will likely end up in Redmond if something isn't done to prevent it. Every member of the Open Handset Alliance has good reason to consider buying Nokia, even as only a defensive measure, but none of them can really justify purchasing the whole company or are really capable of doing so. Google could probably afford it but fat chance they would be allowed to after swallowing up Motorola so recently. Same with Samsung I reckon.

A coalition of OHA members, backed by existing big investors, could gain control though. By keeping Nokia independent you could side-step regulatory complications and still bring it into the OHA and use its resources to level the playing field with the proprietary cartel. Personally I would donate all their patents to a pool that allowed unrestricted use in return for donating any patents, that you control, that you bundle with pool-patents, in any particular device, software package or service, to the pool under the same license. Force everyone to compete on merit rather than in the courtroom.

This new Nokia would still have a vast advantage over their competitors because it is one thing to know how something is done and it is quite another to do it and to do it well. I don't think it would take very long to turn it around and return it to its former glory.

Rinse, repeat, total global domination....

Well so go my sun-drenched fantasies.

So here I come to you guys. Any of you that have made it this far.

I am flawed.

A painful fact that I attempt to deny at every turn. Nonetheless, it is the truth. I don't know everything, I don't have a Degree or a PhD or decades of experience. I'm just a guy that has an insatiable sense of curiosity and so knows a little bit about a great many subjects. What I do know is that I am not an expert in any particular field and that to make my, admittedly toweringly ambitious, plans a reality I will need the help of experts. And of people that see the same thing I do and are inspired by it to take the bull by the horns and go out and try to change the world.

So I would be enduringly grateful of any of you were willing to take the time to look at my ideas, comment on what you like about them, what you don't like about them, things I've missed, basic assumptions I may have gotten wrong. Tear it apart if you think it's terrible, suggest improvements that are glaringly obvious to you and I have somehow missed or just tell me whether you think I'm cracked or I might be on to something worth pursuing.

Yours

Chris Hanlon

Founder

The Darien Project

[That was the short version, just FYI, there is a vast amount more where that all came from but is mostly half-baked, half-formed thoughts about employee remuneration, or targeting the G185 for economic growth, or raising financing, or what best to do with all these excess 'middle-managers'?]