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 / Fall 2003 / Issue 32(originally published by Booz & Company)


Making Patient Capital Pay Off

Stoic Pessimism
Dr. Saillant’s approach for the last two years has been to show up before investors with stoic pessimism about his own company’s prospects. The 2002 annual report, instead of burying the notice of risk as most companies do, spent eight pages listing all the things that could go wrong — everything from faulty technologies to accidents to natural gas shortages to problems with distributors to the worst possibility of all, that the people of Plug Power won’t be capable enough to fulfill their aspirations and promises. Dr. Saillant was so deliberately downbeat at the 2002 annual meeting that a shareholder admonished him: “I’m a little disturbed. Everything [you say] is negative, almost doom and gloom.”

“It disturbs me too,” Dr. Saillant replied. “Sorry to make it hurtful.” As the local magazine Business Review reported, Dr. Saillant then went on to say, “People invest for a variety of reasons. Only people who have the will to invest in this kind of investment should do that, and you should do that consciously.”

At the end of the meeting, the shareholders enthusiastically applauded him. Even the skeptical shareholder told Business Review, “He’s an honest individual. I’m going to stay with [Plug Power].” At last May’s annual meeting, although the revenues and prospects had improved somewhat, low expectations continued. Dr. Saillant, who assumes a Mel Brooks–like cheerfulness about dim prospects (“hope for the best; expect the worst”), is still trying to establish a leadership style very different from the boosterism of his predecessor.

“Today’s investment capital,” says Dr. Saillant, “recognizes that it’s not knowledgeable enough to place a single bet on any one company. If they knew that they would get a certain return after five years, that’s one thing. But there are a lot of promises out there. Now, investors realize that all bets are not equal. My job, in this context, is to provide enough intelligence so that investors have enough comfort to separate themselves from their fear.”

Since my visit to Plug Power, I’ve been trying to figure out whether the capital that Dr. Saillant is seeking actually exists, in a quantity large enough to make a difference. Some writers, like the British academics Daniel Ben-Ami, author of Cowardly Capitalism: The Myth of the Global Financial Casino (John Wiley & Sons, 2001), and Benjamin Hunt, author of The Timid Corporation: Why Business Is Terrified of Taking Risk (Halstead Press, 2003), argue that capital is gone for good — a consequence of the ever-more-ingrained risk aversion that has become endemic to mainstream business.

“The drying up of capital is making it difficult for companies to take chances,” says Mr. Hunt. “Corporate executives are returning millions of dollars to investors in stock buybacks, rather than taking it on themselves to explore new things. On the investment side, the same risk aversion shows up in the rise of index tracking funds: investors herding together to avoid losses. With the result that the whole system is far less dynamic and innovative than it needs to be.”

But at least one observer draws a very different conclusion. The Venezuelan economic historian Carlota Perez published a book last year, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (Edward Elgar, 2002), that has been extravagantly praised by such economic luminaries as the economist W. Brian Arthur and William Janeway, a Warburg Pincus executive. Ms. Perez’s book maintains that there have been five great surges of industrial development since the industrial revolution began in the late 1700s. Each of the five cycles followed the same pattern: a bold new technological “big bang,” a highly speculative period of enthusiasm (which she calls “frenzy”) leading to an economic crisis; then a more fundamentally solid growth surge (which she calls “synergy”) maturing into slow lethargy. Each cycle represents an entire re-creation of industrial infrastructure; the cycle starting in 1908 transformed a steam-driven society into one suffused with electricity and petroleum.

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