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March 24, 2004
The Value of Reputational Capital
Lunch, with the CFO of my ex-Fund. Feel sorry for the poor bastard, really not a bad sort although he ... well let's say he did not stop bad things from happening although I am confident he was not a part of them.
We're talking about potential projects, discussing a business plan. He then starts spilling his guts about the present situation in the Fund. The Director, the theif as you may recall, has refused, utterly illegally of course, to pay him his termination of service indemnity. He's being kept hostage in a way.
His problem now is this news has gotten out, not news-wise but in informed circles. The reputation of the Fund in the market is now ... what it should be. This means he's all covered up in it, for all that at worst (which is actually not very good) he was an enabler through inaction of other's bad deeds.
This is the killer since right now, nobody will touch him. He's got potential liability and is associated with a Fund which potentially USG is going to go after. (Legal gears grinding) It's not good, because in addition, and unlike me, he does not have plausible deniability. Totally misplayed the situation. For me, the short term risk was I was seen as an asshole, disloyal, etc. Best pay off I have ever had from a decision and a real lesson in reputational capital, the value. Walking away, and denouncing a corrupt situation, and having the bad reputation with the right people has kept business and proposals coming my way. This guy is looking at potential personal bankruptcy and losing the house he just built. And he didn't even profit (at least in any substantial manner) from the disaster.
But in many ways his own fault. Had he come out cleanly at the right moment, he would have taken the up front hit, but gotten the aura of reformer and straight shooter. Now, he gets no payoff, and worse, rather penalty. Told me - and I thought the poor bastard was going to cry - that he is thinking of emmigrating, the situation is so bad.
Lesson: don't undervalue your rep, it has market value, and don't undervalue options stemming from what may see a risky move (denouncing the boss, even if there is an aspect of 'market timing' in the move).
He saw the costs, but failed to value the implicit option involved in the move.
Posted by The Lounsbury at March 24, 2004 04:33 PM
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Jan-Jul 2004
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