One of President Obama's many economic advice councils will include John Doerr, the legendary venture capitalist from Kleiner Perkins, and Charles Phillips, president of Oracle, who before Oracle was the top stock analyst cover the software industry.* That's great. (And even greater is the Obama/Pelosi emphasis on science.) But Obama should use guys like Doerr and Phillips for a lot more than generalized advice.
*Replacing Scott Smith, who replaced me. He was called "Chuck" Phillips then.
There are only two possibilities for how we get out of this banking crisis:
- The government shovels huge amounts of money at banks, and doesn't get much in return.
- The government shovels huge amounts of money at banks, and does get a lot of equity in return.
When compared to the first option, the second has considerable appeal. But of course, partial or total nationalization raises a myriad of grave concerns. As the New York Times pointed out,
Some of Mr. Obama’s advisers have asked who the government would get to run the banks. Many of the most experienced executives are tainted by the decisions they made during the age of excess. And how would the government attract the best talent if it demanded that they take minimal pay — a political reality in the current environment?
Frankly, the answer seems obvious.
- Hire gifted and knowledgeable people to provide new leadership to banks.
- Have very strong outsiders supervising the hiring, and the development and execution of strategy.
To put it another way -- there's little wrong with the banks that couldn't and shouldn't have been averted at the board level. So we should fix that now, horribly late though "now" may be.
That's where guys like John Doerr and, to a lesser extent, Charles Phillips come in. Unlike boards of directors in other industries, technology industry boards -- led by venture capitalists -- often do very aggressive jobs of hiring and watching over management teams. And the same is true of private equity/buyout firms. As a general rule, tech VC are a bit too hands-on -- Doerr's then-partner Vinod Khosla once destroyed a company of mine by his interference, and Doerr and Khosla famously made similar mistakes at other companies. But at least they're not potted plants, which puts them way ahead of most corporate directors.. Buyout investors have their own troubling tendencies -- e.g., politically unpalatable degrees of job-cutting -- but often in ways that offset VCs' inclinations.
Sure, technology and buyout boards screw up frequently -- just think of Yahoo and Chrysler, respectively. But even when they do, they usually recognize the screwups -- and then work to fix them --faster than more generic Fortune 2000 boards. Part of what made John Doerr -- or Mitt Romney of Bain Capital! -- rich is their wheeling/dealing skills. But a big part is good guidance of firms they didn't actually run.
Venture capitalists and private equity investors have those skills almost by definition. What I'm suggesting is that we recruit successful financial services and business executives, with experience in effective corporate oversight models, to tackle the biggest corporate oversight issue of our (or perhaps any other era) -- repairing the banking system. John Doerr -- sure, the politicians love him, and he's probably learned from his earlier errors. Mitt Romney -- absolutely. That's what he's good at. Charles Phillips -- not as ideal as the others, but I'm a huge fan from his stock analyst days. There's a lot of talent out there, among guys who are rich enough that they can afford to take the time to help.
Yes, there are huge risks -- but isn't any other course even riskier?