After years of studying financial statement analysis, pouring over financial models, and speaking with management teams about corporate strategy, I have finally stumbled upon the most effective business model in the world. What’s more, the model is dead simple – literally anyone can replicate it. It contains only two steps:
1. Take something that belongs to someone else.
2. Sell the requisitioned object or something made from it on the open market.
Surely, there are some prudish pedants reading this that will point out that, legally, the foolproof business plan I upon which I’ve stumbled is known in English common law as “larceny”, long recognized as a serious felony.
Be that as it may, this business plan lies at the heart of many a fortune.
The gentle reader may be forgiven for thinking that my tongue-in-cheek characterization of the best business model might refer to European empires stripping resources from their colonies or from American settlers stripping property rights from first nations peoples. Indeed, these historical cases are terrific examples of the general principle.
However, there is an example of this business model being exercised right now that is so fundamental to our way of life we barely realize it is happening. To be able to see it, one first has to understand that the steps in the best business model in the world can be carried out in any order.
The companies that are presently carrying out this business model – coal and oil companies – are selling products whose byproducts, pollution and atmospheric carbon dioxide, lower the value of a “good” that is owned in common by every member of the human species: a physical environment suitable for human life.
In terms of our business model:
1. Fossil fuel extractors sell products on the open market that creates secondary products: pollution and atmospheric carbon dioxide.
2. The biproduct destroys value of a good owned in common.
This is the heart of the argument behind a recent report published by the International Monetary Fund that found the likely value of subsidies fossil fuel extractors receive is worth around $5.0 trillion per year and steadily increasing.
About half the “subsidies” calculated in the report is an estimate of the value of the common good – the carrying capacity of humans on our planet – that fossil fuel companies avoided paying simply because there is no mechanism recognized to appropriately price this good and no way to force payment even were it to be recognized.
Whether the report’s estimate of $4.7 trillion of subsidies paid / value destroyed in 2015 or the estimate of $5.2 trillion in 2017 is exactly “right” is an academic point.
The fact is that the forcing effects of emitting fossil carbon into our atmosphere will eventually – not too long from now – cause catastrophic loss in the earth’s carrying capacity of flora and fauna if we do not act now. How you choose to account for the proportional reduction in carrying capacity in any one year is – while a worthy exercise if attempting to encourage policy makers to take concrete, near-term action – immaterial if no action is taken.
Within the fossil fuel industry itself, the degree to which climate reality is setting in varies. The firm within the industry which is, from what I have been reading, doing the best job of balancing the duties to its shareholders with its duty as corporate citizens is Occidental Petroleum OXY.
Occidental’s CEO, Vicki Hollub, has set a goal of carbon neutral oil production, and the company’s investment in Carbon Engineering, a company about which I’ve written several times, and Net Power – a venture about which I am dying to research and write about – exemplify the direction in which the company is moving.
In the Financial Times piece linked above, Hollub says,
We feel like that’s [N.B. carbon neutral oil production] the key to sustainability of our business over time,” she said. “If you don’t have that, you almost don’t need to be in operation.
She knows, as I do, that the only way to build and maintain intergenerational wealth in this century is by investing in a new paradigm. Intelligent investors take note.