On Topic: Should taxpayers help startups?

I thought for a moment I'd misheard. Seated toward the back of the mammoth, standing-room-only auditorium, I possibly could have missed the key message.

But, no, he said it again: The newly crowned CEO of the giant insurance carrier for whom I was an in-house editor at the time made it clear to this gathering of officials and stockholders that the purpose of the company was not to protect widows and orphans.

And it wasn't to shelter its employees or nourish its community.

With a winning smile, he informed us that the vital mission of each of its almost 8,000 employees, 100-plus field managers and battalions of agents toiling throughout the United States, Puerto Rico and elsewhere was to generate shareholder value.

That is, do what it takes to find quarterly profit for the company's stockholders, thereby keeping the board members in their elected, leather-upholstered boardroom chairs and, by extension, allowing him to maintain his grip on the reins of this vast operation.

What can I say? I was younger then. But it definitely was a connect-the-dots moment for me.

Sure, I understood big corporations have a primary charge to stay in business. If they shutter their doors, how can they help anyone else, right?

But that was the first time I'd heard it stated so plainly and directly, without the shiny Christmas ornaments of euphemism to decorate the underlying meaning.

This stockholders-first approach, I've since learned, came to life in an article in the Journal of Financial Economics titled “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” published in October 1976 (a couple decades before I heard the insurance carrier CEO pitch his own flag).

In it, the University of Rochester's William Meckling and the Harvard Business School's Michael Jensen argued business leaders before that had things backward. Instead of merely keeping the corporate ship aright - and, by the way, worrying about their own paychecks - the heads of commerce should look to their shareholders.

They are your true and most important customers, the authors contended in what was then a radical notion.

It still is, to some, years later. But, hey, Meckling and Jensen even quoted Adam Smith, so who am I to disagree?

This question of to whom corporate America owes its allegiances comes to mind as we consider the current doings of AgSugar International/Vertecra here in Cedar Rapids and beleaguered Solyndra. (The latter we certainly will hear and read more about as the 2012 presidential campaign continues to hammer down upon us, like trapped cattle penned in during a thunderstorm.)

When leaders of AgSugar, a startup, concluded this past summer that the biotech machines to which they'd duct-taped their hopes for an ethanol industry revolution weren't all they were billed to be, they switched gears.

And products and the company's name, too.

Instead of building more of the ethanol-related inventions of a one-time dentist from Missouri, the AgSugar execs decided to become Vertecra and assemble LED office lights, as reporter Rick Smith detailed in The Gazette's Jan. 15 edition.

Time will tell whether this was an inspired, nimble business move or an extended “jeez, Louise, what'll we do now” moment of desperation - or maybe both. But it does bring up the question: To whom does the company - any company - owe its allegiance?

“We want to get off our dependence on foreign oil,” declared AgSugar chief Walter Emig in talking up the company that had received $600,000 in state assistance in exchange for the promise of creating two dozen jobs and a new way forward in ethanol production.

After the dentist's devices got tossed from the proposed assembly line, Chief Operating Officer Dan Kazanas noted, “Vertecra is still involved in bio-based processes and products.” The move to LED lights is a means of raising working capital as the company develops different ventures.

In other words, let us keep the lights on and we'll find a way to deliver a viable company. We'll follow through on our pledge to supply jobs, and the ethanol stuff will come ….

Another startup, solar-panel manufacturer Solyndra, received a much bigger boost - $535 million in government loan guarantees. After FBI agents raided its Freemont, Calif., offices this past September, it was revealed the company had $854 million in assets and $867 million in debt. Yikes.

Among the concerns under scrutiny: If the Obama administration did a good and thorough job of evaluating Solyndra before handing out such a generous amount of dough, and whether political favoritism to a big fundraiser was involved (as if such things ever happen in politics).

In this case, none of the stakeholders won. Not the company employees, not its customers, suppliers or vendors, not its investors - us, the taxpayers.

Should we the taxpayers help startups? Absolutely. Many a company wouldn't see tomorrow's first light without a bootstrap up.

Without that help, they wouldn't hire workers, pay taxes, contribute to their communities and foster advancements in their respective fields.

Those handing out the cash and tax deals, though, need to keep their eyes on the prize, too. Otherwise, those allegiances - though not always or even necessarily on purpose - can blur.