Spencer Stuart recently previewed their annual public board governance analysis in the November 2011 Harvard Business Review, comparing board demographics in 1987 and 2011.  Some highlights and my thoughts on the implications:

* Directors are older:  boards whose average director age is 64 or older:  1987, 3%; 2011 37% .  This may have as much to do with director liability issues as it does with the increased oversight responsibilities associated with being a public company director.  It takes more time to be a public company director– more formal meetings, more preparation, and more informal consultation.  Older directors have more time and also have the flexibility to accept the liability risks as their other corporate responsibilities diminish.

* Director compensation is up: average board retainer plus meeting fees per director: 1987: $36,667; 2011 $95,262. The 1987 figure equates to $69,428 in 2010 inflation- adjusted dollars, or a real increase in director compensation of 38%.

*Smaller is better: public company boards with 12 or fewer members: 1987: 22%; 2011 83%. In my view, this is one of the most positive trends among public boards, as smaller groups generally work together more cohesively than larger groups and larger boards are most often dominated by smaller groups within them– sometimes formally, most times de facto.

* More independent directors: the independence rules have become more clearly defined, with Sarbanes Oxley’s passage in ‘02 driving the trend.  1987:68%; 2011: 84%.  Having more independent directors, however, does not necessarily correlate to having a more effective board– let’s not forget models of director independence, such as Tyco and Enron, that were emblematic of poor board governance.

* Still dominated by white males: in 2011, 9% of boards have no female directrs, 16.2% of corporate directors are women, and 15.3% of directors at the top 200 companies are African-american, Hispanic, or Asian.

Dan Primack posted an article in Term Sheet last week titled Yelp This: IPO Market Is Killing It. Several well informed observers of the capital markets, including me, strongly disagree with the assertions in that post that lead to the following conclusion: “What we’re seeing in terms of IPO ebbs and flows is about momentum, not structure.”

In my view, it is all about structure– the U.S. equity capital markets for emerging growth companies with market capitalizations below $500 million are structurally broken and systemically dysfunctional.

Responding to these comments in a new post on Monday November 14, IPO Worries Put to the Test This Week, Dan reasserts “my belief that the death of small company IPOs has been greatly exaggerated.” Several readers, including me, again took Dan to task on this because we believe his facts are erroneous.

Dan’s second post did make it clear that there is considerable confusion over the relevant metrics to determine the health of the IPO market for small cap companies.  To wit, Dan used the following examples to make the argument that all id well in the land of underwriting IPO’s:

‘Well, this week may put that complaint to the test. Clovis Oncology is set to price a $160 million offering, despite having a whopping $0 in revenue. Also on the docket is Lashou Group, which only reports $16 million in revenue for the first nine months of 2011. And InterMolecular, with $26 million through the first nine months of 2011. And, just to be sure this isn’t a one-week trend, pre-revenue BioAmber today filed for a $160 million offering. Maybe this week’s low-rev companies don’t price. Or maybe they do so, but only with massive insider support. But, on the other hand, what if they do price with outsider support. In that case, what say you dissenters?’

While I commented again on Dan’s article on Term Sheet, below is a more extensive response with additional facts:

To be very clear, the central issues behind the systemic dysfunction in the U.S. equity capital markets for emerging growth companies are not the current revenues of companies filing to go public or their current profitability levels—the core problems for U.S. securities regulators, investors, and entrepreneurs are (1) the steadily increasing absolute size of the offerings itself; and (2) whether or not the companies raising the public market capital are U.S. companies that will create new jobs in the U.S.

The small growth company is widely recognized as creating new jobs, and, in America, over the past eleven years we’ve witnessed the capital markets death of one of the great job-creation mechanisms in the United States, the sub-$50 million IPO. Between 1991 and 200 80% of IPO’s raised $50mm or less.  Today, the threshold for liquidity demanded by institutional investors requires $100mm plus for an IPO.  And this isn’t just a venture capital problem—this is a major problem for the American entrepreneur—since 1991, 47% of all U.S. IPOs were neither VC nor PE backed.

Why should you care? Because the following list of companies, which were all venture-backed, went public raising less than $50 million at various times between 1971 and 1996: Adobe, Applied Materials, BMC Softare, Computer Associates, Dell, Electronic Arts, Fiserv, Intel, Paychex, Symantec, Intuit, NetApp, Oracle, Western Digital, Xilinx, and Yahoo! These companies raised just $367 million in the public markets, and they account for 470,000 U.S. jobs today. Adjusted for inflation and measured in 2009 dollars, the $367mm in total dollars raised by this group equals $670mm, and only 2 of these 17 companies’ IPOs (EMC $80mm and Oracle $70mm) exceed $55mm in 2009 dollars. While todaythese companies are household names, let’s not forget that they were unknown small cap growth companies when they first went public. How many companies that represent the next generation of household names will be still-born or acquired into obscurity because they cannot access the public capital markets today?

Your sample of companies is perfect in illustrating these points:

Lashou           Chinese company raising ADR’s in U.S. $70mm offering.  No U.S. jobs here.

Clovis Oncology       $130mm offering from latest news report- and note that Life Sciences companies have a completely different business model from IT companies as the public round is typically another “interim R&D” type of financing on the long road to commercialization.

InterMolecular        $120mm -$140 million, reduced from original offering size based on latest news report.

BioAmber                 $150 million offering

To summarize:  actions need to be taken by securities regulators in the U.S. to restore sufficient post-IPO market liquidity and ongoing research coverage for U.S. based companies to be able to successfully raise less than $50 million in an IPO at a market capitalization of $500mm or less.  That will not happen unless it becomes economically sensible for market makers and research analysts to be involved with such companies.

For more background and facts on this topic, please refer to :

http://www.levp.com/cat-bin/filexfer/show/032410_ICAP_Ocean_Tomo.pdf?artist_id=365&folder=news_attachments&file=032410_ICAP_Ocean_Tomo.pdf

Kelly Slone, director of the Medical Industry Group of the National Venture Capital Association (NVCA) posted an important article on October 7 on the NVCAccess blog, clearly calling out that the unintended consequences of FDA regulations have precipitated a full-blown crisis in medical innovation in the U.S. This crisis has already damaged America’s global competitiveness and slowed medical innovation in the U.S.  The report “revealed that US venture capitalists are reducing their investment in biotechnology and medical device companies and shifting focus overseas to Europe and Asia, primarily due to regulatory obstacles at the Food and Drug Administration.”

In related news, Mark Heesen, NVCA President, announced today that U.S. venture capital funds raised a total of  $1.7 billion, a 53 percent decrease in dollars from the third quarter of 2010 and the lowest amount since the third quarter of 2003.  Heesen observed in his blog post what he expects will become apparent when Q3 2011 VC investment statistics are released next week : “you can bet the total dollars invested into start-up companies will be a multiple of the amount raised.  It has been this way since 2008 when the industry began investing more than it was raising.  In fact, by the end of this quarter, the venture industry will have invested at least $20 billion more than it has raised in the last 3+ years.And just like a bubble, this imbalance is not sustainable.  Unless the industry begins to raise more money, we can expect investment levels to decline in the coming years in a significant way.”

You can download the full report: Vital Signs: The Threat to Investment in U.S. Medical Innovation and the Imperative of FDA Reform, from the NVCAccess blog.

Some key conclusions from the report follow:

U.S. venture capitalists have been and will continue to:
• Decrease their investment in biotechnology and medical device start-ups
• Reduce their concentration in critical therapeutic areas, and
• Shift focus away from the United States towards Europe and Asia
FDA regulatory challenges were identified as having the highest impact on these investment decisions.
We must act now or lose our leadership position in medical innovation, job creation and access to life-saving treatments in the United States. If the current situation is left unaddressed, the implications to U.S. patients and the economy are significant:
• Many promising medical therapies and technologies will not be funded and therefore will not reach the patients that need them.
• Those that are funded may not be brought to market in the United States first, or at all.
• An estimated funding loss of half a billion dollars over the next three years will cost America jobs at a time when we desperately need employment growth.
• The U.S. leadership position in medical innovation will be placed in further danger and economic growth with suffer.

For more factual background on the decades of neglect that have led us to where we are today, you may find the following links to presentation slides useful:

America’s Slipping Global Competitiveness– Implications for the Next Generation of American Emerging Growth Companies, keynote speech remarks delivered by Pascal Levensohn at ICAP Ocean Tomo conference, March 24, 2010, San Francisco

American Innovation in Crisis,Cybersecurity Applications and Technologies Conference for Homeland Security (CATCH) Conference, Walter E. Washington Convention Center Washington, D.C. Keynote Speech by Pascal Levensohn, March 4, 2009

Increasing numbers of professionals in a position to foment meaningful change in the capital markets are recognizing that structural issues underlie the IPO drought for emerging companies with market capitalizations below $1 billion.  This must become a widely held point of view before any meaningful structural reform can take place, setting aside the legislative delays we can continue to expect from the partisan divisions that have rendered our elected leaders ineffective.

I’ve made this structural argument for over three years on this blog and in public speeches.  Again, I urge readers to make their voices heard on this topic.  On November 24, 2008 I wrote A Case Study in the Unintended Consequences of Financial Regulation:  The Death of the U.S. Small Cap IPO? and invited anyone with constructive, practical ideas on how to revitalize IPO’s in the United States to contact me so that I could pass along their ideas to my colleagues at the National Venture Capital Association. In this post, I made a strong argument that structural market issues were the root cause of the death of the small capitalization IPO:

The lack of IPO’s in the U.S. has broad, negative implications for continued risk taking by U.S. venture capitalists. If we have no public market liquidity for emerging growth companies, there will be no next generation of American technology giants. The demise of the technology IPO has also contributed to the structural breakdown in the broader cycle of research and development that underlies the American innovation crisis…

This post followed my exposition of the argument that America would face an overall crisis in innovation, drawing on work by Judy Estrin and others, in September 2008: The Innovation Crisis Is Coming- Let’s Do Something About it Now!

Sadly, the veracity of these arguments is being proven over and over again, as the venture capital industry continues to shrink and the fallacy of an American jobless recovery becomes apparent.  Pointing to the success of several handfuls of social media companies as an index for the general health of innovation in the U.S. in 2011 is not statistically meaningful and irrelevant to the thousands of startups that are finding it impossible to reach the much greater critical mass necessary to access the public equity capital markets today.  To be clear, publicly traded household names that would not be able to go public today based on current IPO requirements include Dell, Intel, EMC, Yahoo!, Intuit, EA Sports, and many others.

In an article published on October 6, 2011 in Traders Magazine.Com, conference remarks by several leading international stock exchange professionals show that they are coming around to understanding the downside to small companies of a trading market infrastructure that treats unknown emerging public companies the same way as multi-billion dollar liquid securities:

“Though trading costs have gone down, that isn’t necessarily a good thing, according to Steve Wunsch, head of corporate initiatives at the ISE Stock Exchange. He said low trading costs have made it difficult for anyone to make money trading smaller names, thus drying up markets for smaller companies.”

…

Joseph Hall, a partner with the law firm of Davis Polk & Wardell, said the government could have caused part of the problem by repealing the Glass-Steagall Act’s separation of investment banks and commercial banks. That allowed a lot of small brokers to be bought up by big banks, reducing niche trading, he said.

Grant Thornton’s [David] Weild placed more of the blame on Reg NMS, which he said homogenized the markets to the detriment of new issuers. He said a one-size-fits-all market structure does not support smaller, newer companies.

The good news, Weild said, is that Washington seems to be paying attention. …

In my view, the bad news is that it’s taken three years since the global financial crisis erupted for us to get an increasing number of influential people to pay attention.  Meanwhile, millions of jobs have been lost, and innovation in America continues to suffer.

I am addicted to performance vehicles, and I am also environmentally conscious.  Yes, it’s been a long and tough battle to wage against myself.  So you can imagine my relief as I accelerated from 0-60 in less than 5 seconds in a completely silent, all electric vehicle: the tour de force Tesla Model S.  As a former Mini Cooper owner (two of them) and one of the first people to buy a Smart Car when it came to California, I am definitely an early adopter.

The Model S does not disappoint.  The Tesla Roadster didn’t do it for me, as it is too small for my needs, and I’ve been patiently waiting for the Model S. I was fortunate to be able to join three other friends to ride in the beta prototypes at the former Toyota NUMI factory in Fremont, California.  About 1,000 people were invited yesterday, and the event is being duplicated today.  The amazing thing is that Tesla is only using maybe 10% of the total plant’s 5 million square feet (please correct me if I am wrong on utilization).  According to a Tesla engineer that we spoke with, the current robotic assembly line (also very cool) can produce 20,000 cars per year one on shift– so total current annual capacity is about 40,000 – 50,000 cars.  We were told that the cars will start being delivered summer 2012.  Let’s hope so!  My only disappointment at the event, which definitely had a hip, L.A. feel to it, was not being able to drive the Model S myself, but I understand it’s still in beta.

Not only is it roomy and well appointed (alcantara leather headliners, leather upholstery, superb digital touch screens, great sound system), the Model S is a silent missile.  The torque of the electric engine is amazing: click HERE for video link.  I’ve been trying to reserve mine online today, but the Tesla site keeps crashing.  Guess I’m not the only one who appreciates the breakthrough innovation that Tesla has achieved.  Bravo!

For more info on the Model S go to: TESLA

In 2000, my wife, Belinda, and I replanted a small vineyard in St. Helena, California and have overseen its evolution into Leaf + Twig.  While the vineyard itself can yield close to 10 tons of  grapes, translating into approximately 500 cases of wine, we have only made about 25 cases of the Leaf + Twig each year.  The balance of the Leaf + Twig Vineyard grapes are sold to Vineyard 29 and blended into the highly regarded Cru label.   Since 2004 we have released six vintages of this super premium cabernet sauvignon wine.  Philippe Melka made our 2004, and Keith Emerson, the Director of Winemaking at Vineyard 29 since 2005, has made every subsequent vintage to date.  We are delighted with our early tasting of the 2009, which will bottle age for 12 months prior to its release in June 2012.

Beginning with 2006, we selected a unique label for Leaf + Twig that captures the essence of our vision for this wine: a refined nose, elegant fruit on the palate, and subtle complexity through its long finish. Designed by David Hughes, who is well known for his work for Thomas Keller,  the label itself is all white with embossed leaf and twig impressions.   The image above shows the design in black and white in order to highlight the impressions of actual leaves and twigs from the vineyard that frame the upper and lower borders of the front label.

There is an important double meaning to the name Leaf + Twig, as those were the names of our two loyal canine companions. both of whom pre-dated the vineyard.  Sadly, Leaf + Twig both passed on in 2010.

To visit the site and learn more about Leaf + Twig, please click HERE

I just saw the announcement that the Washington Monument will remain closed indefinitely due to the damage from the recent earthquake, and, in addition to feeling generally uneasy with that concept, now I can’t stop singing the lyrics to Spirit’s 1971 song, Nature’s Way, so I’ve gone ahead and downloaded it from iTunes.  The Washington Monument needs to be open; it can’t have cracks.  What’s going on here?  Is this “the new normal” in America?

In the article. “Voting to Hire a Chief Without Meeting Him”, written by James B. Stewart, The New York Times reported on September 22 that the CEO search committee of Hewlett Packard’s board of directors, consisting of four HP directors, did not require all 12 of the board members to interview the committee’s choice of Léo Apotheker to replace Mark Hurd before the board acted to hire Apotheker as CEO.

Scarcely 12 months since Apotheker joined HP, the value of the company’s equity has declined by approximately 50%. Recriminations about the board’s flawed selection process are now emerging, and Apotheker’s short tenure ended later on Thursday, the 22^nd, with the formal announcement that HP director Meg Whitman will become the new HP CEO.  Ms. Whitman has been an HP director for less than one year and therefore was not a member of the board involved in the Apotheker search and selection.

Even if we try to forget the widely publicized (and criticized) circumstances of the board’s handling of Hurd’s dismissal, ignore the boardroom drama associated with the end of the Fiorina period, and generally dismiss the extraordinarily poor record of corporate governance notched by the HP board across the tumultuous reigns of three CEO’s since 2005, this latest revelation is stunning.

According to the New York Times article:

Interviews with several current and former directors and people close to them involved in the search that resulted in the hiring of Mr. Apotheker reveal a board that, while composed of many accomplished individuals, as a group was rife with animosities, suspicion, distrust, personal ambitions and jockeying for power that rendered it nearly dysfunctional.

Among their revelations: when the search committee of four directors narrowed the candidates to three finalists, no one else on the board was willing to interview them. And when the committee finally chose Mr. Apotheker and again suggested that other directors meet him, no one did. Remarkably, when the 12-member board voted to name Mr. Apotheker as the successor to the recently ousted chief executive, Mark Hurd, most board members had never met Mr. Apotheker.

Considering the statements above, please answer the following question:

By not requiring that each member of the board of directors, to whom the CEO reports, personally interview the CEO candidate recommended by the CEO search committee, all of the members of the Hewlett Packard board violated the following fiduciary duties:

A. Duty of Care:  requires a director to act with the care that an ordinarily prudent person in a like position would exercise under similar circumstances.  This duty requires directors to

• Make informed decisions;
• Obtain information they believe is reasonably necessary to make a decision;
• Make due inquiry.

B. Duty of Loyalty: requires a director to act in the best interests of the corporation and not in the interest of the director or a related party

Issues often arise where the director has a conflict of interest:

• • Where the director or a related party has a personal financial interest in a transaction with the company
  • Where the director usurps a “corporate opportunity” that properly belongs to the company

C. Duty of Good Faith: A separate duty of good faith has emerged in some jurisdictions such as Delaware where a director has engaged in such egregious behavior as to not have acted in good faith.

Examples of not acting in good faith:

• Consciously or recklessly not devoting sufficient time to required duties
• Disregarding known risks
• Failing to exercise oversight on a sustained basis.
• Failure to meet the duty of good faith can have serious adverse consequences to a director, such as being exposed to personal liability for breaches of the duty of care or losing coverage under indemnification or insurance policies.

D. All of the Above: The HP board allowed personal agendas, dysfunctional behavior, personal animosity, process fatigue, and emotionality to undermine what is arguably the single most important duty of the board: to oversee, hire, and fire the CEO.  If this reporting of the facts is correct, there is no doubt that the entire HP board serving at the time of this decision bears some measure of responsibility for the economic value lost by the HP shareholders.  This lack of oversight, especially when considered in the context of the board history of this this company, is an injurious insult to the shareholders and a slap in the face to corporate governance best practices.

Welcome to the latest passionate debate over the ‘valuation bubble or not?’ question in venture capital.  This time, the debate centers on the “favored few” Social Media venture backed companies that have brought tremendous windfalls to a select group of venture funds and management teams, both pre- and post-IPO.  Does the primary and secondary capital raising prowess of companies such as Facebook, Linked In, Pandora, Twitter, Groupon, Zynga, and others, mean that we have finally crossed the threshold and reached a sustainable new valuation paradigm (it’s different this time, really), or is this another accident now happening in real time?

Capital Markets Advisory Partners cleaves the demand for pre-public VC-backed equities into two worlds: “Demand Pull (Buzz) and Supply Push (No Buzz) companies. The former includes the Twitters, Facebooks, Linkedins, Tesla Motors of the World and the latter is the 95% of companies (B2B SaaS, Semiconductors, Cap Equipment, Biotech, MedTech, etc) that need to be marketed (Supply Push) by legions of brokers. … We have a stock market that works for one kind of buzzy (Demand Pull) stock but is a disaster for the rest of the economy. The problem is, that it is the capital intensive stocks in manufacturing that create most of the jobs and these companies are overwhelmingly “Supply Push.” While this post is about the Demand Pull companies, we should all be focused on the Supply Push companies if we want to move the needle on job creation, risk taking, and new venture formation in America.

In April 2011, just prior to the Linked In, Pandora, and RenRen IPO’s, Fred Wilson reaffirmed his belief on his blog that we were not in a bubble in this sector: “In all the posts over the past year or so outlining my thoughts on the financing and valuation environment in the internet sector, I’ve avoided using the word Bubble. It is intentional. For me Bubble will always be inexorably linked to what went down in 1999 and 2000 in the internet sector. And I agree with Mike Arrington that what is going on now is different. I do not think we are in a Bubble per se.”

On August 11, 2011 Dan Primack wrote on this topic in Term Sheet and concluded differently: “I believe that the current Internet bubble is economic. Specifically, too much money has gone into VC-backed Internet companies at too high a valuation. It has been a private market phenomenon much more than a public market one”.

I agree with Dan Primack’s conclusion, largely because the overvaluation omelette has been scrambled in illiquid, non-public grey markets for both primary and secondary capital.  These markets are not yet well developed and remain asymmetric.  Consequently, values for “hot” companies have a greater likelihood of being inflated because the basic nature of the process brings out more buyers than sellers, and it only offers access to a small subset of high profile companies.

Subsequently, the IPO underwriters for these companies that won the business did so by successfully setting IPO premiums to these private valuations and telling a story that the public IPO buyers bought.  Because over 70% of daily trading activity is driven by rapid turnover funds, public market valuations at any given point in time are even less indicative of fundamental enterprise value than they ever have been. David Weild of Capital Markets Advisory Partners and former Vice Chairman of NASDAQ concludes that, beginning in 1999 “The self-directed market, gratis of the Internet itself, took the IPO market from one intermediated exclusively by professionals to one frequently dominated by unpredictable gunslingers.”

The combination of hype and the fact that, at least initially, there were more buyers than sellers for these “hot” IPO’s, is how these deals got done.  Short-term trading patterns even allowed some people to make money from the IPO’s themselves—most likely the public market winners circle is largely comprised of those short-term high velocity traders that pay most of the commissions to the underwriting firms…

An important point that Fred Wilson did make in his April post is that “investors should recognize that the current valuation environment will not exist at some point in the future. The companies we invest in will need to grow into these valuations or we will face writedowns and writeoffs. We should not let the greed emotions cloud our judgement. Yes, that hot deal sure looks damn good right now. But deals are actually companies and most venture investments are held for five to seven years.”  I would add, however, that, in my view, the valuations at which VCs invested in these “hot” social media companies are precisely the product of “greed emotions”.  It is also now evident that these inflated valuations have not proven to be sustainable in the public markets.  I will post separately on valuation metrics and the implications of the dichotomy between recent public company valuations and merger & acquisition statistics.

One collateral effect of inflated valuations in hot sectors has been an increase in pre-money values across the board, which is not a good thing for whoever is the “last one in” when the music stops.  This is similar in effect to the epic 1996-2000 Internet Bubble cycle but for the expansion of the players in the pre-IPO inner bubble circle.

As Primack points out in his post: “Law firm Fenwick & West reports that valuations for Silicon Valley venture financings rose 61% in Q4 2010. This was the sixth straight quarter in which their barometer showed an average valuation increase, including a 28% bump the prior quarter. Thomson Reuters data indicates that pre-money valuations for VC deals in the U.S. tech sector have more than doubled since 2007. MoneyTree reports that “Internet-specific” companies raised more first-round VC dollars in Q2 2011 than in any other quarter since Q4 2000.”

Company valuations cannot defy gravity indefinitely, and I roundly reject the notion that a new valuation paradigm has been defined for Social Media companies or anything else (including Gold). The music has now paused, though it may not have stopped, for the favored few.  For the other companies that comprise 95% of the venture-backed universe, the music never started.

Unintended consequences will result from S&P’s downgrade of the United States’ credit rating.  One that we should encourage is developing a frank and constructive discussion of the root causes for the failure of leadership by our elected officials. Is the fabric of our political institutions now sufficiently frayed to catalyze long-term thinking and coherent policy planning that will actually outlive any single election cycle?  Sadly, as long as strident partisanship, personal disrespect, and polarization continue to define the U.S. political process, we are unlikely to do better than continue to lurch from one crisis to the next.

America’s debt downgrade is only the latest manifestation of our country’s slipping global competitiveness.  In my view, two important words should be at the forefront of any constructive discussions about America’s way forward: “posterity” and “stewardship.”

While there is little debate over the fact that the lack of U.S. economic growth must be resolved by creating new jobs, there is little agreement over how to remove the structural obstacles preventing a return to robust growth.  While it may be an oversimplification, in my view the U.S. economic engine can only be re-energized if risk takers are encouraged to take economic risk through the formation of new enterprises.  The Congress and the Administration should view prospective changes to the tax code, government spending, and the U.S. capital markets with two primary objectives: First, to empower and re-invigorate the American entrepreneur; and, second, to attract the foreign entrepreneur to the U.S.  By now it should be apparent that we will be unable to tax or cut our way to prosperity without promoting the long-term growth of new enterprises that create new jobs in America.

American political institutions, the machinery of democracy, have increasingly become ossified because it is not in the interests of our elected leaders to lead.  Many of our elected officials confuse leadership with dogmatic obstinacy while others equate achieving compromise with success, regardless of the quality of the result.  Lost in the shuffle is the concept of acting in the broader public interest, a noble idea that has been trampled by partisans who are uncompromising about their narrowly interpreted constituencies’ immediate needs.  All but short-term thinking is absent from the behavior of the vast majority of our leaders.

Can we expect more from the legislative body of the House of Representatives when each member serves a two-year term?  Can we expect long-term thinking from our leaders in a society that is all about instant gratification?  Can we expect gradualist behavior in our capital markets when over 70% of daily trading volume comes from high velocity pools of capital that are engineered to profit from the short-term?

We can and we must.

Our leaders need to be re-educated about the obligations of leadership, of what it means to serve as representatives of the people who elect them.  Leadership in government entails carrying a sacred public trust, and it requires making decisions that may not be in your own immediate self interest but are in the long-term best interests of your society.  Being a fiduciary requires you to make the best decisions for all of your constituents, not just for yourself or for those that you represent in the narrowest of terms.  At times it requires self-sacrifice, and at times it will make you unpopular. Stewards are ready to take on the responsibilities of taking care of something that belongs to someone else.  America needs leaders who understand that they are the stewards of our society, not just for this election cycle or the next one, but for future generations of Americans.

As a signal to the world, the downgrade of our sovereign debt risk implies that the full faith and credit of the United States Government isn’t worth what it used to be.  That should not be the legacy that our generation leaves to posterity.