The Building Block equity fund was initiated by BADER, the Lebanese association set to promote business development and entrepreneurship in Lebanon. Back in 2006, a group of successful business people got together and decided to try giving effectively to society while doing business. After a series of presentations and a road show, two European financial institutions, eight Lebanese banks and six Lebanese individuals joined in and committed capital to form the first Lebanese fund to invest in Lebanese and Lebanese-related small and medium enterprises (SMEs).
In any economy in the world, and especially in emerging market economies including Lebanon, small and medium enterprises form the backbone, and are main driver of the economic activity. Offering equity capital outside the traditional banking system would serve for boosting the possibility for promising companies to have additional chances to develop successfully.
When a corporation decides to exercise its social responsibility, it does so willingly and not under any legal requirement. It does it to serve higher purposes related to thriving in a more balanced environment to the benefit of society at large.
It is a social responsibility to successfully introduce equity capital on the Lebanese market to generate a push for the national economy. Shortcomings at any phase would send negative and discouraging signals on the market, reducing it to stick to traditional approaches with their sorry limitations in terms of value creation and development.
Effective corporate social responsibility is a continuous challenge. Success and failure are relatively subjective and very difficult to measure. Accountability on certain parameters is mainly to the organization itself. While financial performance can be measured, the cost of wasted opportunities and shortcomings often cannot.
The overall vision, the strategy, the approach, the implementation and the measurement tools are all very critical for the continuation of any action or program. They need to be tackled with an objective mindset and consistency
Over one year after the closing of the Building Block equity fund and on the eve of making the first batch of investments, we are looking at what took this initiative so far and what is necessary to help it complete its journey:
All the commitments and contributions came conditional to meeting certain criteria and conditions. This brought a clear purpose and discipline in the application and execution. Preparation to receive is the first phase towards education and sustainable improvement.
The entire initiative was open and sincere. It was unambiguous upfront that it would not serve any narrow personal ambition, political agenda or short-term objectives. This generated very solid ground for goodwill and mobilization. The fund started with strong credibility.
Big initiatives grouping many constituencies have to be part of an integrated program beyond the big announcement and related publicity. It is like parenthood: it cannot be transactional. It requires continuous follow-up and caring, and most importantly regular assessment and questioning of the intermediate results and outcomes. It is important to make sure all the resources and efforts allocated are well used and not wasted away from the originally set objectives and expected results.
Entrepreneurs and SME owners are a special breed with specific needs and challenges when they approach outside investors. The investors should start with a very big capacity for listening to understand their real needs. A partnership is patiently constructed. This is a time consuming and tedious requirement but it is fundamental to get a clear understanding to design mutually beneficial sustainable approaches and solutions. It is important to identify and feel the potential of the business, the people involved and the market at large.
Proper communication of the rules of the game very early on reduces misunderstandings, false expectations, and most dramatically defensiveness on the receiving end. Here, patient education efforts to articulate the responsibilities, the rights and rewards, and accountability tools customized for the situation and consistent with best practices, and generally accepted rules have to be prepared and ready for presentation.
Examining investments is similar to examining players for a sports team. It is about exploring their potential, about how to grow them to their full potential, how to drive it to the limit to blossom into reliable, sustainable and valuable assets. Coaching the individuals and the team to make sure they end up having what it takes to grow and develop. And then for them to grow and breed the same constructive and coaching spirit in their own environment. Individual actions are useful as long as they last. They are limited without viral spreading.
Objectivity is the most critical social responsibility and we always have to use it with care to explain, say, why a project is not attractive and why the current management needs restructuring and reinforcement to help redirect and refocus the resource allocation, or simply turn it down. Refusing an investment for good reasons is better than making the investment for bad reasons. Starting a money pit is the worst thing that can happen to all the players involved. Clear explanation and constructive feedback with the exploration of potential alternatives is helpful and can be rewarding. Promising entrepreneurs may be in the wrong project and vice versa. The little known story about Akio Morita who faced three bankruptcies before he successfully started and developed the Sony Corporation is inspiring.
Nagy Rizk is the managing director of BADER’s Building Blocks (BB) Fund.
