Why capitalism has a "black eye"

Recently South Street Partners bought the Cliffs Communities. One of the first items of business was to buyout the Cliffs Members who had loaned the Clubs $60 M during the financial crisis to keep the communities afloat.

The new owners had several options:
1) do nothing,
2) make as small of an offer as possible to "satisfy the note holders"
3) see this buyout as an opportunity to demonstrate they are an ethical group of business men who will be fair to those they do business with, especially their clients at this high end golfing and retirement community.

They sent out an offer, which appears to be option 2, asking for "indications of interest." I took the opportunity to reply with a perspective that this offer was an opportunity for them to build trust with their clients, and they came up short. I chose to blog this as an example of how businesses should view their actions in ways beyond just immediate financial considerations that benefit them. This memo to them will likely be ignored. I have no illusion it will matter, and that's why capitalism is being questioned by regular people (especially the millennial) who fall prey to "big business."

Here is the content of my memo:

In your recent solicitation to the note holders, you say you are asking for “indications of interest.” While I can show my level of interest by checking a box, I feel I should also provide a more thorough perspective that I, as a note holder, have regarding your offer. I was a business executive for over 20 years (12 years as an executive committee VP with Coca Cola Consolidated in Charlotte). I have taught Business Strategy to college students, preparing them to be ethical professionals. So, my perspective is not uninformed.

Generally, note holders' interest will be driven by emotion and principle, since none of the options you provided is a significant nor reasonable financial choice. For instance, I am disappointed in the way you structured the payout. Depending on whether I assume 3% or 5% avg annual cost of money, your payout options are anywhere from 30% to 50% below the present value of the current payout agreement.

This means you are willing to make a deal with current clients in which the benefits accrue quite asymmetrically to you. Many, including me, will see this as an unethical action on your part, which basically says you are planting the seeds of mistrust with your clients of the Cliffs Communities.

I understand you have the leverage to “squeeze out” of the note holders a significantly discounted payout. You should also understand that ethics is when the person with power does NOT take undue advantage of others for selfish benefit. Ethics is about the principles of fairness. The payout option you are offering is well below the present value of the current deal, which was suboptimal from the start. The note holders are the committed members who “stood up” in difficult times for the sake of the community.

I will not hesitate to share this with others when asked about my view of your deal. You own your character reputation by choices you make. For one of the first major actions as owners, you will not be endearing yourself to members.

You may accomplish your financial goals, but you will lose in the hearts of your clients.