Monday, August 11, 2008

The Reasonable Investor Test

This is the notion that you should be able to justify your actions e.g. spend, decision, execution path, etc. to a collection of 16 reasonably minded investors. This is meant to be a self test by somebody about to make a decision, spend money, etc. in a company that is funded by investors (public or private). This is important given the fact that the person closest and most sensitive to the investor (CEO, CFO, or Investor Relations) is not able to be present in an organization at all levels and at all times to safeguard decision quality.

The Reasonable Investor Test was coined for the group of people that I worked with at my software company where I often challenged potential abuses from staff and leadership at all levels of the company that unchecked would fail this test. As I explained to my colleagues, imagine yourself presenting your decision to a collection of 16 investors that politely assembled to hear your story. If you can look them in the eye and justify the decision or expenditure then it passes the test. If you would not be willing to do this then you probably should not make the decision or take the action you are considering.

Hmmm, I wonder where we’d all be if Enron and other hosts to corporate scandals had a reasonable investor test?

1 comment:

Argi said...

Nice photos !!!