Vision How does it feel to work at SoftBank Group Corp.'s Vision Fund, which has been in the news a lot recently for its massive troubled investment in WeWork? Well, here, have a word cloud: Early last year, SoftBank hired a consultant to interview employees and prepare a report on the fund's culture and investment style. The report, reviewed by The Wall Street Journal, used a word cloud to show how often the firm's 12 managing partners said certain phrases. The most frequently used terms include "rule breaking," "secrecy" and "lack of trust." A few positives, "fun" and "good," appeared about as often as "turf wars," "hubris," "politics" and "posturing." The Journal has a picture of the word cloud. The biggest type size—I am not a word-cloud guy but I assume that means the most commonly used word?—is for "siloed." "Lack of alignment," "Unclear," "Centers of Power" and "Personality Driven" are also way up there. Look, this is worse than the WeWork stuff! If you hire a consultant to assess your culture and they come back saying "the best way to describe your culture is with a word cloud," then things are already bad. But then the top word is "siloed"! First of all, that's a terrible clichéd business-jargon word; it suggests that your biggest problems aren't even original or interesting. But also, man, those problems are real. Here's what "siloed" means at the Vision Fund: On several occasions, separate investment teams discussed investing in the same company on different terms, according to current and former fund executives and entrepreneurs who have discussed or received an investment from the Vision Fund. … One executive warned that entrepreneurs seeking investors were taking advantage of the fund's disorganization and loose vetting, warning that "people are actively hiding deals from each other," according to the report. Okay fine that's a little original and interesting. I would read more reporting about what they are doing to hide deals from each other, and how they're finding out about each other's secret deals. Though this is all from last year, and since then things have gotten much better with the help of a chipper robot: The firm has since established three cultural principles—teamwork, integrity and impact—that are assessed at quarterly off-site meetings and programmed into the touch screen on the SoftBank-manufactured robot, Pepper, that greets guests at the fund's headquarters. An internal Slack channel labeled #Praise encourages employees to recognize positive actions by their colleagues. "Like all fast-growing companies, we faced some challenges early on," the Vision Fund spokesman said. He said words such as "improving" and "collaborative" are among the most common in more recent surveys. Well those are pretty jargon-y too, and you certainly don't want "improving" to be at the top of your word cloud ("improving" is business jargon for "bad"), but it is, um, an improvement. The Vision Fund's culture also fits oddly with its compensation structure: The Vision Fund's employees are on the hook if the value of the fund declines substantially. Last year, the Vision Fund rolled out a compensation plan under which SoftBank will lend employees money to buy units in the fund. Borrowers must offer personal guarantees on the loans. Mr. Son has signed up to borrow more than $3 billion, a person familiar with the matter said. Mr. Misra and other top SoftBank executives, including Mr. Claure and SoftBank's head of investments, Ron Fisher, have borrowed a combined total of several hundred million dollars. (Masayoshi Son is the head of SoftBank, Rajeev Misra is the head of the Vision Fund and Marcelo Claure is a SoftBank executive who is now chairman of the board at WeWork.) One occasional theme of this column—it is not investing advice, but it is investing-advice-adjacent—is that you should not go work at a job where your compensation is highly variable and might be very negative. If you are working at a job for an employer, then you want to be paid a positive amount of money. There are limited circumstances where zero might be acceptable. But in general you should not put in long hours doing difficult work with challenging colleagues for years and years and then at the end be presented with a bill. "Thanks for your service, as a bonus, please pay us $10 million": no. I confess though that this is mostly a matter of my personal preferences. In fact a lot of people in the investing business are comfortable with the possibility of negative compensation, and think that it is a good and healthy incentive. A typical hedge fund manager, or even a typical analyst at a hedge fund, will keep a meaningful portion of her wealth in the form of shares of the fund, and if the fund goes down a lot over some period she might end up poorer at the end of that period than at the beginning. That result seems uncommon over long periods—you don't hear about a lot of people being impoverished by going to work at hedge funds—but the theoretical possibility helps improve motivation, align incentives, etc. Leveraging that risk seems a bit much? Non-recourse leverage is like stock options, and a fine way to encourage risk-taking; recourse leverage—"borrowers must offer personal guarantees"—is kind of the opposite. Theory would suggest that giving employees too much downside risk would encourage them to be overly cautious, to prefer boring indexy investments to preserve their wealth rather than the sorts of moonshots that their investors have signed up for. Arguably that is … not the problem … that the SoftBank Vision Fund has? So, sure, tweak the incentives a little to scare the fund's executives away from another WeWork. But it's kind of rough at a big fund with a siloed, unaligned, unclear, centers-of-power-based, personality-driven culture. If you can lose all your money and go into debt based on your bad decisions, then that might concentrate your mind and encourage you to make good decisions. If you can lose all your money and go into debt based on your colleagues' bad decisions, then … look, that can work, that's conventionally called a "partnership," but it tends to rely on deep trust among partners backed up by a collaborative environment, transparent information sharing and a careful selection process for partners. "We didn't hire each other" is, unbelievably, one of the phrases in the Vision Fund's word cloud: not a great sign! If your colleagues are actively hiding deals from you, then why would you trust them with your net worth? Oh one last cultural point from that Vision Fund article is this absolutely Wambsgans first paragraph: Flying over Europe in a private jet last year, Rajeev Misra took his shoes off and propped his bare feet on the knee of a top executive of FIFA, soccer's governing body. The executive froze while Mr. Misra, head of SoftBank Group Corp.'s $100 billion Vision Fund, chatted about ways to make more money off the streaming rights for the organization's tournaments. The Journal put that at the beginning of their article but I am mentioning it at the end here because there is really nothing to say after that. We Meanwhile what would a consultant's word cloud about WeWork's culture look like? Ugh, don't answer that. It would look like a pie chart, or a Mondrian painting, or the hash marks used to represent Woodstock's speech in "Peanuts." "Your culture cannot be expressed in words argle bargle &%&%&%&%& HHHHHHHH [falls over]," the consultants would report. Also a certain amount of alleged pregnancy discrimination though: When the chief of staff to the WeWork co-founder Adam Neumann became pregnant in March 2016, she was reluctant to share the news with her boss right away. But ultimately, the employee, Medina Bardhi, felt she had no choice. She had to explain that she could no longer accompany Mr. Neumann on business trips "due to his penchant for bringing marijuana on chartered flights and smoking it throughout the flight while in an enclosed cabin," according to a complaint she filed with the Equal Employment Opportunity Commission in New York on Thursday. What followed, the complaint said, was a pattern of discrimination, as Ms. Bardhi was repeatedly derided and marginalized by Mr. Neumann and other WeWork officials. Mr. Neumann referred to her maternity leave as a "vacation" or "retirement," according to the complaint. One general thing that I will say about the culture of WeWork, and of SoftBank's Vision Fund for that matter, is that the subjective experience of the culture is going to depend a lot on whether the stock price is going up or down. Hundred-hour weeks and abrasive colleagues are tolerable and even inspiring in the successful pursuit of a grand vision; when things go wrong they are just mismanagement. You can overlook a certain amount of misbehavior and mistreatment from your boss when he is an eccentric visionary genius, but not when he's a weird kook, and the difference between the two is largely one of market valuation. Who owns a corporation? There is a conventional folk theory that says that if you own, say, 5% of the shares of a company, you are entitled to—you "own"—5% of its net assets. This is not, most of the time, for most practical purposes, especially true. If you own 5% of Apple Inc.'s stock you can't just walk in and start grabbing iPhones. But in some limited circumstances it is kind of true. If Apple decided tomorrow that it was liquidating, it would sell off its assets and pay off its debts and whatever was left over probably would be divided out among the shareholders based on their percentage ownership. Similarly if Apple is acquired in a merger, etc. In some rough sense what common share ownership gives you is the right to your set percentage of the company's assets, after paying off its liabilities, in most terminal states of that company. And because much of the business of financial markets is about backward induction from terminal states, that tends to make your shares worth more or less their percentage of the company's net value, now. That's how shares of normal companies normally work. It's how shares of normal banks normally work. It is, back in the dim prehistoric murk, how shares of national central banks kind of worked—banks would generally all be joint owners of the big central bank, etc.—but it is not really how they work now. Central banks are now mostly instruments of national monetary policy, and usually they either don't have shareholders, or (as is the case for the U.S. Federal Reserve) have shareholder banks who own weird vestigial non-economic non-traded shares. But this leads to confusion—"Some observers mistakenly consider the Federal Reserve to be a private entity," says the Fed—because, you know, people think that owning shares entitles you to a set percentage of the net assets of a company. But there are a few central banks that have traded shares with some economic rights. South Africa's, for instance: The South African Reserve Bank is one of a handful of central banks around the world—including Switzerland, Belgium, Japan and Turkey—that has private shareholders. Trading at around 10 rand and carrying an annual dividend of a maximum of 0.10 rand, the bank's 2 million shares don't look like a great investment. Nor do the bank's private shareholders wield much power, despite owning all its stock: They vote for some of the bank's nonexecutive directors and approve its auditors, but have no influence on monetary policy or the selection of its governor and deputies. Two million times 10 rand equals about 20 million rand. The SARB has net assets of about 20 billion rand. (One U.S. dollar is about 15 rand.) Twenty billion is more—roughly 1,000 times more—than 20 million. The message of the market price is the same as the message of the voting rights: The SARB's shareholders are not its owners, don't control it, and do not have claims on its net assets. They just have weird vestigial shares that pay a dividend; the economic value comes from the dividend, not the underlying assets. Unless, maybe, the SARB enters a terminal state in exactly the right way: Michael Dürr, whose career includes a stint at Goldman Sachs in London, believes foreign shareholders are set to capitalize on a 2017 decision by the ruling African National Congress to nationalize the central bank, by appealing to international tribunals for compensation. He sees precedent in a 2002 case that handed minority shareholders a portion of a public bank's net worth. In the 2002 case, a Dutch arbitration tribunal ruled that private shareholders in the Switzerland-based Bank for International Settlements, a consortium of central banks, were entitled to net asset value minus a 30% discount. The ruling, prompted by the institution's decision to eliminate private shareholders, handed shareholders an extra 9,052.90 Swiss francs ($9,109) a share on top of the 16,000 francs a share they had previously been offered. "That we will get [the South African Reserve Bank's] net asset value or a part of it is obvious," said Mr. Dürr, who, in combination with family members, at one point controlled 100,000, or 5%, of the bank's shares. See, SARB is getting acquired, maybe, sort of, via nationalization. (The nationalization idea is currently stalled in "a vicious factional battle within the ruling party.") In an acquisition, shareholders generally get their percentage of the acquisition value. In this nationalization they might not, but there's an argument that they could, by appealing to some arbitration tribunal's sense of fairness or philosophy of corporate ownership or whatever.[1] SARB disagrees, but admits that there is some possibility of confusion: The South African Reserve Bank's legal team says it doesn't believe that South African law would give its shareholders access to the bank's net assets, which amounted to 20.05 billion rand for the year ended March 31, or its foreign and gold reserves, which stood at $54.4 billion at the end of September. But the bank's General Counsel Johann De Jager says decisions by international tribunals are harder to predict. "There is a risk because you can't control what happens," he said. On first principles, and without knowing much about South African law or politics, I am with the SARB—central banks really shouldn't be privately owned, and treating their shareholders as their owners is just sort of a confusion of terminology—but I suspect that many people will disagree. (If you own shares of Fannie Mae and Freddie Mac and have spent the last seven years suing the U.S. Treasury, for instance, you may have some sympathy for Dürr.) But I also, as a guy who likes finance, just appreciate Dürr's moxie here. "Officials at the bank believe Mr. Dürr's activism helped drive the idea of nationalization": He's not just reacting to nationalization by betting that a tribunal would give him the asset value; he's trying to make it happen. (I mean, preferably by getting the government to pay him the asset value voluntarily.) He noticed things that were called "shares" but didn't really trade, or work, like shares; he bought a lot of shares; and then he tried to convince people that they're actually shares and should get paid out that way. It is not a crazy plan, and it has a pleasing sort of philosophical purity. Option expiry I feel like a popular genre of financial reporting, one that we sometimes indulge in around here, is "oh look someone bought short-dated out-of-the-money options that had a huge payoff after some unexpected event happened." Often the event is a merger, and sometimes the person bought the options because he had inside information, in violation of the Second Law of Insider Trading. But sometimes it's just, ooh, someone got lucky, isn't that suspicious. On the other hand I almost never read stories like "oh look someone bought short-dated out-of-the-money options and then nothing happened and they expired worthless, oh well," even though that obviously happens at least as often as the big lucky ones. So I appreciated this Bloomberg story: Traders preparing for a Halloween shock in currency markets after the last Brexit deadline placed bets worth billions of pounds in options, most of which are set to expire worthless on Friday. Sterling is holding its ground above $1.29 after the European Union gave the U.K. another three-month extension to the previous Oct. 31 exit date. That leaves many options maturing Friday as out of the money, including a notional value of over 10 billion pounds ($13 billion) that the currency would slump below $1.28 or climb above $1.30. "That has always been the problem in playing Brexit in the volatility space," said Adam Cole, the head of currency strategy at Royal Bank of Canada. "The deadlines are too flexible." There is sort of a popular meme that holds that well-connected hedge funds are making lots of profitable currency bets on their inside knowledge of Brexit, so it is useful to see evidence the other way: No, actually, lots of bold bets on dramatic Brexit action just kind of fizzle out. Though I suppose it's hard to prove a negative; maybe the really well-connected funds were selling the options. Things happen Google to Buy Fitbit for $2.1 Billion to Boost Hardware. Deutsche Bank Reported Its Own Russian Deal as Suspicious. Altria Probed by U.S. FTC Over Role in Resignation of Juul's CEO. Jim Chanos gets October windfall from corporate disasters. Carlyle, Apollo See Benefits From Changing Their Structure. "In one case, Fisher solicited a customer's father who'd been dead for three years." Greece's biggest bank accused of violating capital controls. How Elizabeth Warren Is Reviving the Concession Theory of the Corporation. "In a way, bees are like an investment bank or an asset-management company." How a Mexican General's Exile in Staten Island Led to Modern Chewing Gum. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] Bizarrely there is a statutory way to do the nationalization that would not trigger this: "The South African Reserve Bank Act of 1989 caps compensation for shares at their average market price for the year ending three months before a liquidation order is introduced in parliament." So in a *liquidation*, shareholders don't get the net asset value, which is not consistent with how ordinary corporations work but which is very consistent with the notion that the shareholders don't "really" own the central bank. But a liquidation is messy—it "would require dismantling and rebuilding the bank's legal structure overnight"—and the government would sensibly prefer to just take over the existing bank as an entity rather than liquidating its assets into a new one. And it's not perfectly clear that *that* procedure would avoid net-worth claims from shareholders. | 
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