Values vs valuations

SHAREPHIL INVESTORS VIEWPOINT - Boots Garcia (The Philippine Star) - January 14, 2021 - 12:00am

“We invest in values and not valuations.” – This was my key takeaway from Jillian “Jill” Manus, managing partner of Structured Capital, a Silicon Valley early-stage venture capital (VC)  firm, during the fireside chat hosted by the Manila Angel Investors Network.

The mission of their VC firm is to provide strategic support to startups who create value from underutilized assets and excess capacity. Jill explains that this investment philosophy, largely influenced by the 21st century business model, seeks to deliver good not only to shareholders, but also to the broader society.

Underlying this philosophy are key values of integrity, accountability, gratitude, transparency, and humility, which their firm looks for in startups and founders seeking funding. What is more important for this VC firm is that these values are mainstreamed, drilled down, practiced, measured, and lived by the people and proponents of the business.

Jill also shared that most of the time, many businesses fail not because of the product, but because of the people.

Ethics and the investment industry

Reflecting on this philosophy and how it may apply to investments in the capital market, I recall an article entitled, “Ethics and the Investment Industry” released by the CFA Institute in October 2017 in reaction to the financial scandals which wracked Wall Street. The article stated that “ethical conduct is vital to the ongoing viability of the capital market. Further, unethical conduct from market participants, investment professionals, and those who serve investors can damage integrity and trust, and impair the sustainability of capital markets.”

If investors step back and revisit the process of deciding on where and what to invest in, they would typically look at information on the company, balance sheet liquidity, earnings growth, return on assets, cash flows, and other financial metrices. Behind all of these numbers and information, do investors take the time and effort to understand the organization’s purpose and the values it stands for? Do such values reflect in the company’s policies and practices? Are such values embedded in every corner and level of the company?

In a book written by Robert Chestnut, chief ethics officer and former general counsel of Airbnb, he refers to all these as the practice of “intentional integrity,” which is coincidentally also the title of the book. He says that organizations who adopt this philosophy “can deliver both business success and positive social value and that there is growing evidence that failing to establish trust and ignoring issues important to an organization’s entire slate of stakeholders will hurt the company’s bottom line performance.”

SharePHIL key priorities in 2021

I thought these learnings are relevant to SharePHIL’s theme and key priorities for the year under the leadership of our incoming president Jimmy Ysmael, which is “Promoting Inclusive Economic Recovery Through Smart Investing.”

1. Given our focus on investor education as a key advocacy, we aim to expand the coverage of our activities to a wider audience to cover small retail investors, including students at the college level. We believe that we should extend our reach to a wider audience to have the maximum impact, aligning it with our thrust towards wealth creation and inclusive growth, consistent with our purpose to “enable Filipinos to invest wisely, achieve financial security, and contribute to the socio-economic growth of the country,” as we are responsible not only to our members and partners, but also to society in general. Indeed, smart investing should not only be based on what financial returns a company can deliver, but also on how these returns are generated and what corporate practices underlie these promises.

2. We will address industry/capital market issues through active advocacy work with regulators and other stakeholders, as regulations alone will not be sufficient. To the extent we can, we will respond to shareholder concerns through appropriate representation and assistance. We are aware of situations in the past where shareholders have raised issues on the perceived lack of transparency and fairness in the practices of their investee companies which impact investor trust and ultimately impede the development of a robust capital market.

3. Through our active participation in shareholders’ meetings and engagement with publicly-listed companies, we will provide feedback to issuers on how they can enhance their corporate governance practices. We think that one key to the success of firms is to develop a culture of integrity and adopt a set of values that permeates all levels of operations, keeping in mind the best interests of all stakeholders.

These programs are anchored on SharePHIL’s values of: Fairness, Accountability, Independence, Transparency, and Honor.

As the new year calls for new beginnings and opportunities to “start anew,” my challenge to all market participants is to now “go beyond valuations and consider values in decision-making” – and view this as a responsibility to lead, use your investment capital as a “force for good,” and contribute to a more progressive future.

Ma. Aurora “Boots” D. Geotina-Garcia is the vice president of the Shareholder’s Association of the Philippines (SharePHIL). She is also a trustee of the Institute of Corporate Directors (ICD), and is chairperson of the Philippine Women’s Economic Network (PHILWEN). She heads Mageo Consulting Inc., which provides corporate finance advisory services.

To learn more about SharePHIL or become a member, visit https://sharephil.org

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