Presently the U.S. does offer relief of capital gains taxes for investments in small businesses but the tax break isn’t widely used, because there are so many technical requirements that can’t be met.

Here is an idea – extend this tax break to those willing to invest in businesses in less developed countries. Our work in sub-Saharan Africa suggests there is a strong desire from financially successful members of the diaspora to invest “back home”. Investors with no blood connections might also seek investment opportunities in developing nations. These could be investments in new businesses they start themselves, or in existing businesses seeking equity support.

The two largest African diasporas are in the USA and the UK. Both countries could make changes to their tax codes to encourage entrepreneurial investment in places where entrepreneurship and resultant jobs are sorely needed.

It goes to our focus on west Africa.

Our starting premise is that the lack of trust in Africa makes everything go slowly, that until you’ve tried doing business in Africa, where the smallest transaction is seen as a leverage point by individuals seeking something for themselves, you’ve never experienced slow.

This is true not only where one expects it – from civil servants and at police roadblocks – but also from professionals, often within business settings, from small offices to factories to corporate organizations. The people one encounters can be indecisive and use their positions to promote personal agendas over doing the job. African worklife can be petty.

In Africa everyone expresses concerns about trust. Into this we inject the notion of thin trust. As opposed to the thick trust between blood relations, thin trust is what makes society function. You hand a shopkeeper money and believe he will hand over the items you have just paid for. You sign a contract and believe the other party will live up to their end of the bargain. You trust that things will be as people say they will be – because they or others like them have come through in the past as promised. People believe that the best predictor of future behavior is past behavior, and if you are unknown to them they are wary.

Trust depersonalizes transactions, and allows business to flow unimpeded and we want to make this explicit — and remind people what they may know but never practice — that trust speeds activity. It might also lessen control but that is okay — society is healthy and there is plenty for everyone.

Trust and trustworthiness go beyond honestly to competence and professionalism. It is pertinent to individuals and to organizations. With trust, things happen — without it, nothing happens.

We at J2 Partners are planning a business-oriented public education effort that emphasizes trust in the private sector businesses most likely to create jobs — high growth or medium sized businesses. An immediate focus is on developing demonstration projects to highlight the benefits of trust. We invite all to contact us on this interesting issue.

I’ve been interested in Africa and in economic development ever since serving in the US Peace Corps in Kenya from 1982 to 1984. One reason I started a business importing garden products some 12 years ago was that it would give me the opportunity to source products from Africa. We built a good business with one particular pottery company in Ghana and four years ago we gave them a loan. Two years later, this could have been material for an April 2007 newspaper column in the New York Times by Thomas Friedman, ‘Patient’ Capital for an Africa That Can’t Wait.

Ceramica Tamakloe (CT) started operations 22 years ago at Adenta, outside of Accra, Ghana. The company founder, Peter Tamakloe, started his business producing glazed tableware for local customers but this market did not last, killed by cheap Chinese imports. CT ceased producing glazed ware entirely in 1995. Fortunately it had developed an export business and the company found itself with big repeat orders from the large US retailer Pier One Imports and from smaller privately-held importers in the US and Europe. Its merchandise ranged from decorative plates to candleholders to flowerpots, often decorated with Adinkra symbols, a popular Ghanaian design motif. CT’s authentic African designs resonated with many Western consumers and allowed a premium price over similar mass-produced merchandise.

I have heard some people argue that the issue is one of “pipeline,” that is, that there simply aren’t enough women on the executive track to get them to the top.  On the face of it, that doesn’t fly – women have been approximately 30% of the MBA classes at the top business schools for decades. However, women have myriad obstacles in their path that do not affect men.  According to the September, 2007 Harvard Business Review article “Women and the Labyrinth of Leadership,” by Alice H. Eagly and Linda L. Carli, these obstacles range from prejudice to resistance to women’s leadership and styles to lack of a strong network to the demands of family life.

A senior executive coach I spoke with recently, who has coached C-level executives for many years, including approximately 25% women, answered a few questions for me.  I asked how women leaders compare to men, in his experience?  His succinct reply:  they are far better.  I asked why he believes there are fewer women in senior management than men?  Again, his crisp reply:  because they are far too sane.

And yet the lack of women leaders in most major corporations has a huge potential downside for the corporations themselves.  Much work has been done over the years to identify “the business case” for diversity.  A recent study done at the Ceram School of Business in France determined that “Feminization of management seems to be a protection against financial crisis.”  They showed that companies with a higher percentage of women in management seemed to perform better in the first few months of 2009 than those with lesser percentages.  The study, done by Michael Ferrary, a professor of Human Resources, stated “Several gender studies have pointed out that women behave and manage in a different way than men.  They tend to avoid risk and to focus more on a long term perspective.  A larger proportion of female managers balances the risk taking behaviour of their male colleagues.” Ferrary highlights two remaining questions:   More female managers = better business performance ? or:  More gender diversity in management = better business performance ?

Similarly, in October, 2007, Catalyst published a study in which they demonstrated that corporations with more female board representation outperformed – on a number of important business metrics – those with fewer women.   In January, 2004, Catalyst research demonstrated results similar to Professor Ferrary’s, but focused on senior management – and used a larger, U.S. based sample.  The 2004 study showed that “companies with the highest representation of women on their top management teams experienced better financial performance than companies with the lowest women’s representation.  This finding holds for both financial measures analyzed: Return on Equity (ROE), which is 35 percent higher, and Total Return to Shareholders (TRS), which is 34 percent higher.”

So, to put this together:

• Women have made very little progress in the U.S. on achieving the top levels of corporations, despite a consistent pipeline for many years
• This is likely due to a wide variety of factors, some of which are controlled by the women themselves (e.g., resigning to maintain work life balance) and some of which are controlled by leadership at the various companies.
• Data suggests that diversity of gender in management and on the corporate board helps generate better corporate performance.

How can we get unstuck, given the data demonstrating the benefits of change?  Eagly and Carli’s HBR article makes a number of structural recommendations.  My conclusion aligns with theirs.   I particularly believe that this will not be addressed without deep structural changes in corporate roles.  Bear in mind that the current corporate organizational chart was built on a military model and designed for manufacturing, where command and control was critical.  Now, we are largely in a service industry where collaboration and team work is more important – and are documented to be (on average) greater strengths for women than for men.

But first, as we learn in coaching, there must be a serious desire for change. The change required to propel women to the top of organizations is extensive, and will not happen without enormous effort and commitment on the part of the men who currently run most corporations. While some men currently help promote women out of a sense of fairness, it is likely that an expanded pool of committed men will only come as additional, irrefutable, cause-and-effect, controlled studies emerge to prove the business case for women in management.

In 2005, my wife, Judy, and I purchased a former Esso gas station property in our hometown of Montclair, New Jersey.   For several years I ran a business from there called World Pottery, which was a garden pottery import warehouse with plants.  It was always our plan to improve the original, run-down cinder block structure.

First we needed to deal with the contamination. When we occupied the property in 2000 it was filthy, with dozens of old tires, chopped up engine blocks and unidentifiable auto parts, oil spills on the pavement and soot so thick on the interior walls you could draw in it with your fingertip. We spruced it up enough to run a successful garden pottery business. Lurking underground, however were more problems caused by leaky tanks, spilled gasoline and oil. What you can’t see is scary. Was this a $10,000 problem. A $100,000 problem. $200,000? More? You just don’t know. Judy and I had great trepidation but no choice and we entered into an NJ state-run environmental remediation process that, though very slow, ended up not being as costly as our worst fears.  At the same time we selected an architect and began thinking through our options. 

Plans A, B & C(ollaboration)
Plan A was a 2 story mixed use building. There would be three modest apartments on the 2nd floor and two retail spaces at ground level. Then construction estimates came in high, especially for the rental apartments, and things went from bad to worse when in April 2006 the township approved an affordable housing program that would have added a $45,000 fee to our modest project.

Plan B coincided with a revised business plan for World Pottery and was a single story building with a useable roof for retail displays. It passed township review, garnering the required variances, but the “nut”, all falling on World Pottery, seemed too large, too risky. It was mid-2007. Our estimated development budget of $700,000 fell on the low end of the range of bank commercial financing programs, which generally ran from $500,000 to $5,000,000. The low end is the most expensive end, where flat fees consume larger percentages of budgets. Sensible bankers advised a home equity loan — risky, but a possibility for Judy and I.

Then we looked at the office building across the street — where Bob, Jack, Jason and David worked. Bob and David were Wall Street veterans turned developers. Jack is the best builder in town. Jason runs a medical business and has serious interests in jazz and environmentalism. They had a direct interest in the neighborhood and it took no time to determine that a partnership was the way forward. We’d use no banks, the project would be all equity. Together we joined in a new corporation, and simplified Plan B into Plan C – a single story green commercial building. We also decided to make this a spec building and to close the World Pottery retail business. Having a retail store had its rewards but the hours were long and being a small and independent retailer is a tough road in 2009 so we refocused World Pottery toward distribution only, eliminating our need for retail space.

The partnership was a true collaboration.  One important key is that our partners were also professionally involved in the project.  In addition to writing checks for 100% of the construction costs, this group met at least weekly to hammer out details and identify savings. 

The resulting project came in without debt risks and has gotten rave reviews by town residents.  It was the talk of Spring season soccer sidelines! Nearly finished, it features 14 foot ceilings, old-look brick, onsite parking, rooftop solar panels and low water native landscaping. We started in August 2008 and more or less had it completed by February 2009. We have two signed leases for 100% of the space and are now hammering out the interiors with scheduled occupancy set for September 1, 2009.

Judy and I could have chosen to take this on ourselves and kept 100% of the equity but to do this we would have had to put in way more cash than we did, we would be burdened with a small mountain of debt and made novice mistakes.  What for?  We are fortunate to have found tenants so quickly in this terrible market — thanks to our partners. As it stands we are the largest shareholders with the balance of the equity split among the partners.  A bookkeeper distributes balance sheets and P&L’s each month — everything is transparent.

With the building now fully leased its value is at its maximum and we are about to begin shopping to put a mortgage on the property and take out some money.

Replicable Approach
I think this is a replicable approach.  Following this model, property owners could transfer their properties into a new corporation where they would be joined by local partners and collectively write checks up to the total project cost, taking money out only after the building is fully leased. These local partners can be anyone, but the power of our partnership came from the composition of its members — all of whom added value during the development process. For property owners the message is to go all the way and develop their properties into their highest and best uses, then – after creating value – cash out. Too many commercial properties sit vacant and forlorn as their owners wait for huge paydays upon selling. They want the value of the eventual highest and best use without the work or investment involved in creating it. Our approach turns this on its head. Collaborate to make the value real, then share the rewards.
  
Going Green
In the first partner meetings during winter 2008, we decided to construct a green building.  I had previously secured a hefty rebate on solar panels from the NJ Clean Energy Office and that, combined with the groups’ inclinations, caused us to explore obtaining LEED certification. LEED, which stands for the Leadership in Energy and Environmental Design, is a green building rating system that provides standards for environmentally sustainable construction.

With the building complete, in March, 2009 we pressed the “submit” button on the U.S. Green Building Council’s website, having completed an application for Gold Level, LEED status. We could have done less and just had a few green items but our group doesn’t tend to cut corners.  LEED provides a framework and requires a discipline throughout the construction process that produces the most sustainable building.  And the LEED process places great emphasis on energy and producing a high performance building. Thanks to treated glass, awnings, cellulose insulation and attention to detail, our tenants will enjoy a well lit, tight building with clean air and reduced utility bills.

The Curse of Small Projects
When you build a commercial building your money wants you to build as large as possible. Small projects, however, have constraints. This property is on a corner lot and we nearly complied to the letter with onsite parking requirements. So with setback requirements on two sides and with providing 15 of the 17 required spaces (we received a variance for two), the required sitework was more and the resultant building footprint was less, than our money would have liked. And LEED certification raised our building construction costs by roughly 7%. On larger buildings I can see how LEED certification would be at cost parity with conventional construction but the very small size of our project, with 3,500 square feet to spread costs over, led to an inevitable premium.  I think we could do it again for a 5% premium, maybe less, knowing what we now know having gone through the process once.

On the other hand speed has positive effects on ROI and we did lease the space quickly – in part because it is green. Still it is clear that small properties are difficult-to-develop and offer lower ROI than somewhat larger projects. Given that many of the 225,000 contaminated properties nationwide are like our property, former gas stations likely to have similar physical characteristics, it is no wonder their positive reuse is taking time.

The lesson from this project is that small or large, green or not, collaboration was the mechanism that moved things forward. I’d encourage all property owners to explore whether this approach makes sense for them.