Interview: Hidden Treasures (English)

Donald Kalff interviewed by Harry Starren

This interview (in Dutch) was conducted in May 2019 and can be found on the Cafe Weltschmerz Youtube channel: https://youtu.be/cfC6VO-8CHw?t=24

The below transcript was slightly edited for clarity and completeness. Its four chapters were added to increase readability. 

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1 THE DANGERS OF ANGLO-SAXON CAPITALISM

HS – My name is Harry Starren and I will be speaking with Donald Kalff. I am looking forward to that conversation: he is an entrepreneur in what I think are the life sciences (he will probably correct me) and he has a long history in the corporate world. He knows the American business world because he did a PhD at Wharton, he told me. Donald is a man who writes books about capitalism in an extremely critical voice and yet he appears to be a fan of that same capitalism. That seems to be the paradox, do you like it as a system?

DK – Not so much capitalism as such, but I do see an indispensable role for large companies. I see that large companies play an essential role in the tapestry of economy, because they are financially strong, because they can exploit technology, because they can scale up small business. I also think that the major problems of our time cannot be solved properly without the help of large companies.

HS – And at the same time they are a threat to that system? You have said something about the blessings of large corporations. What is the threat from them if we continue to do what we do now?

DK – Large companies have sold their souls to financial markets. Where in the past the stock market was used to raise capital in order to grow a company, these days a company’s stocks are instruments among many others to make money with money.

HS – Is that a false signal?

DK – It is certainly a false signal, and there is also a doctrine behind it. That doctrine is that all parties in a company — management, employees, customers and suppliers — are protected. Only the shareholder is at risk. The shareholder takes on the mantle of the entrepreneur and deserves his privileged position. That is the myth that has been created.

HS – Was it ever true?

DK – It was once true, and now it is still used to justify that the company is at the service of boosting earnings per share, in the supposed but falsified assumption that this leads to a higher stock price.

HS – That is an indication of the value of a company.

DK – It is taken to be… it’s not true, there is no relationship between the share price or market capitalization and the economic value of a company – but that game is played on the stock markets. Also, there is no relationship between earnings per share and the share price. I don’t say this, McKinsey does. So there is a short circuit…

As a result, value is leaking away on a big scale: you have a company of tens of thousands of people and you put earnings per share at the center, that is the prime indicator. And then…

HS – A collective myth?

DK – A total myth.

HS – Myths exist because many parties have an active interest in them, otherwise they would be debunked. You do that but they don’t. You’re a lone voice in this story, aren’t you?

DK – Many people have been critical, but no one focuses on this simple mechanism. You have to add to that that the rewards of the vast majority of directors are directly linked to the corporate profit per share or even directly to the share price. And so now, if you are the CEO, the head honcho, the boss, and you have four, five years — what are you going to do to increase that earnings per share?

HS – Name the tricks.

DK – The standard trick is of course delaying investments, postponing…

HS – You’re going to milk the cow!

DK – Yes, because investments have start-up losses, which go at the expense of profit. Of course large companies have substantial programs, but as CEO you have an incentive not to invest or, at least, to postpone.

HS – And if you do it, the pay back must be short? So if you do invest, it’s only going to be short-term winners: ”A good return in two years, within my term, because otherwise I’m helping my successor.”

DK – Absolutely! Or even the successor of my successor. Another accounting matter is that if you take over a company, that does not show up on the profits-and-losses account but on the balance sheet and so you can amortize that acquisition over many years. But you can immediately add the contribution of that acquisition to your company’s profit.

HS – Is that one of the explanations of this willingness to add to conglomeration?

DK – Yes, you see it especially in the pharmaceutical industry, with terrible consequences. We know that 70 to 80 percent of all those mergers fail, so the paradox is that value is destroyed in the name of the shareholder.

HS – Almost all those acquisitions have to be written off over time. And it is almost always the successor who makes that decision, saying, “Let’s take our loss.” When the new CEO takes office, you see a willingness to just admit: It is not worth what we thought it was worth.

DK – You can’t attract that new man if you won’t allow him to do all the write-offs; he’ll never take the job.

HS – Because then he can never shine. He has to say: “I want to be able to write off because yes, we will never get that back, let’s face it, we have payed too much…” Are people systematically paying too much?

DK – Far too much is paid, but moreover it is a sick system: both the buyer and the seller employ investment banks who, except for a modest retainer, are only fully paid when the deal is struck.

HS – Commissions and interest?

DK – It is estimated that with the bid that BMS made on Regeneron, an 80 billion deal, at least one billion was for the advisers. They will always find solutions for issues that arise during the negotiations.

HS – And it would be a loss of face if you stop halfway. So then, you rather ‘succeed’ and postpone the failure.

DK – Yes, it takes a few years before it becomes visible.

HS – You could become very cynical about all this, but you don’t seem to be cynical.

DK – To complete the picture: it is earnings per share, so shares are being bought back. You see large companies in which tens of thousands of people are working hard, their work reduced to optimizing a ratio: get the profit up, buy in shares.

HS – The reverse of diluting, you are going to thicken.

DK – Yes, you spread the earnings over fewer shares.

HS – And again, they do not spend the capital on investments in the company. In a sense, it’s capital that they apparently had no use for, other than a takeover. It should be ‘leftover’ money then, right? It has a huge price-driving effect.

DK – Buying shares is also a matter of timing, many companies get it terribly wrong, and there’s also the odd result of you pushing up the price of the asset, the stock, that you want to acquire.

HS – It has a price-driving effect, and that effect is inevitable if you announce it. Is it actually price manipulation, because by saying “I am going to buy,” you are promoting the share price? It would then be better for them to wait and only announce “We will do it soon” a couple of times.

Are these people doing anything besides this, or is this their most important game and is the real work done by others?

DK – This is what they are mainly doing. There are some other side effects of the emphasis on profit per share that are important: you don’t want to run risk. Innovation is risky, you avoid that. In the past, pharmaceutical groups had their own large research department. They are all rapidly scaling them down or dismantling them.

HS – So now they buy the little ones.

DK – They used to buy small companies; they don’t even do that anymore. You can cover the technical risk that way, but not the commercial risk. Now, they wait until a company has a turnover of 200 million, at that point the value of the product in the market is proven and they only have to scale it.

2 BIG PHARMA, SHELL, KLM

HS – The pharmaceutical industry is your game of choice now?

DK – I have a few small companies in that field, but I don’t want to be associated with Big Pharma!

HS – But you get your ideas from your experience with Shell, KLM, large companies, and the pharmaceutical industry. They indicate how this game is played. It is a widespread game, this takes place in all listed companies?

DK – Yes, but it is worth noting that I worked for Shell before the reorganizations and that didn’t apply there. It was a solid, but entrepreneurial company then.

HS – You could safely invest in Shell because it was rock solid.

DK – Not only that, but they were actively investing in a variety of fields.

HS – How do you explain the course they’ve taken? Because now, they’ve become like all others.

DK – At one point they appointed the wrong man. Van Wachem left and then Herkströter came in (HS: an accountant) and he had seen the light! He was the man who started to focus on shareholder return. He brought in American advisers and committed what is a deadly sin: changing the culture, reorganizing and cost cutting — all at the same time. This ensures that even a company like Shell will need a long time to get back on its feet. Later they had trouble with the reserves affair in Australia.

HS – Overestimating reserves.

DK – No, initially not according to Shell. Shell thought that their method of assessing those reserves was better than that of the SEC… and that should not have had major consequences, but it was the reason for Calpers and a few other large pension funds to finally put an end to that clumsy, hybrid Shell structure. Royal Dutch and Shell Trading, two head offices.

HS – They were forced to become “normal”?

DK – As part of this whole process, Shell became a Limited Company. An Anglo-Saxon company. And according to Anglo-Saxon corporate law, the company has fiduciary duties towards the shareholders.

HS – Then you become the puppet on the strings of the shareholder. That is different from our corporate laws by which you have a much more generic responsibility… here, the shareholder is only one of the stakeholders.

DK – At least, everyone has the interests of the company to serve. Some people take that to mean, submitting to each stakeholder, but I don’t believe in that either!

HS – So I can’t get you to acknowledge that serving all stakeholders works because you get a balanced company that does justice to all parties involved. You choose a different course; we have said this previously: you go ‘straight through the middle.’

DK – ‘The Radical Center,’ right. (laughs)

HS – A radical middle solution. Can you explain that? We will be speaking of Europe soon, but first I wanted to start with the company.

DK – Just briefly, back to my experiences. I have seen at KLM that everyone was very vocal about the ‘interests of the company,’ but at the same time that company was torn to pieces by institutional interests. They were supposedly all defending KLM, but there was a pilots’ union, a union for cabin crew, ground staff, there was an association of white-collar staff and they all had their wishes. All those wishes were then deposited at the feet of the board.

HS – Sounds like Air France but no longer like KLM, does it?

DK – I have left KLM a long time ago, I really can’t say, but it was certainly the case at the time.

HS – So then the members of the board become politicians. (DK: Yes, politics becomes the driving logic) and then they lose the entrepreneurial character that you find essential for the success of companies and for creating value.

What is the essence of value creation in this approach? Not to focus on share and stock price, obviously, it doesn’t serve the continuity of the company and it will even destroy value, I hear you say. So now, ‘Professor Kalff’: how DO you create value?

DK – It’s basically household accounting. The central part of [financial] reporting is the origin and the use of all the cashflows (HS: This is what the auditor always checks.) You must also have a sound balance sheet, a positive difference between your assets and liabilities because you must be able to absorb setbacks and variations in the market.

HS – You must be future-proof.

DK – You must not use profit as a basis for decision-making. That gives rise to all kinds of complications. Profit is something that you can only see with your back to the future. You have to turn around and confront all those uncertainties. Then you seek to grow the net present value of all the positive net cash flows that you expect in the future.

HS – So it becomes much more a story than simply adding up what you’ve earned. It becomes: How good is your story about the future? What are the future sources of prosperity, you must also value those. A farmer will say: “I won’t harvest the land this autumn but look at all the young seedlings.” It’s a different attitude: When I look in my wallet it’s empty, but all seeds are planted and ready. As a leader, this requires you to tell the world you have put in the seeds.

DK – First, you need a license to operate. Society allows you to plant and harvest and that continuity is important, because without continuity you will not collect the projected cash flows in the first place You will be out of business before they reach maturity.

HS – An example was Shell in Nigeria. They talked about a deal with the government, but the license to operate was questionable.

DK – It was always Shell’s strong point: being part of the local community. That’s why Shell never left South Africa; Shell WAS South Africa.

HS – It was not considered a foreign company. That went less well with the adventure in Siberia, Sakhalin… We are now going into details.

So you have to be anchored in society because it is a big risk if that anchoring is not there. Then the whole game ends.

DK – Even more importantly, if you project cash flows, for example income from sales or licensing, you also become more sensitive to future developments that have a negative or positive impact on that cash flow. It is a wake-up call.

HS – It forces you to look ahead and to identify what is strengthening or weakening those cash flows. A correct assessment… I always think: Isn’t it strange that we leave this to accountants?

DK – Accountants say explicitly that they do not provide future guarantees. They provide a faithful representation of the current state of affairs. There is nothing more in that auditor’s report.

HS – It’s a snapshot, you could say an MOT. How do you really know if a company is solid? Who makes that call, an analyst?

DK – You should be very pessimistic about the insights one can develop about a company as an outsider. But of course, all kinds of mistakes are made, things can go wrong.

HS – And yet… Bezos, we say, he understands things that we don’t see. It is almost magical, the confidence we have, at least as far as the stock price is concerned.

DK – There are of course gifted entrepreneurs who realized, sooner than others, that network effects are so huge. Adding extra customers costs nothing so your productivity increases.

HS – Like with pressing DVDs: you’ve already incurred the costs, so each DVD added adds income. No more costs, only revenues.

DK – Yes, but then again, you don’t hear from the hundred web stores that tried it but didn’t make it. At some point, size makes you more attractive to potential customers and the winner takes all.

HS – This fascinates you. You studied at Wharton, an institution known for its financial know-how. You were a member of the KLM Executive Board, now you are a serial entrepreneur, I read in your resume. This American capitalism, as I call it — are you a fan of it or not?

DK – I am a declared opponent of it! Not only because of the financial mechanism that we discussed, but also because of the whole doctrine of individual leadership. That causes enormous additional damage.

HS – You mean the one-tier board. Or the CEO?

DK – In many companies you still have a chairman and a CEO who are the same person.

HS – We then say: He supervises himself.

DK – But even where these roles are separated the CEO is far too powerful. Americans say: Only individuals can inspire, only individuals can ensure policy consistency, only individuals can be held accountable. A board of directors is inherently weak, slow, flailing, you must not have that.

HS – But you create sun kings, right?

DK – Exactly, and now we know, much more than twenty years ago, how incredibly inadequate human judgment is. We are all subject to 40 biases and counting. It is even worse because we overestimate our capacities. People believe that they can absorb far more information than they are capable of. People think that they can predict, that they are a good judge people, and good at selecting people (HS – In their own judgment, of course, don’t ask anyone else). But they aren’t even aware of their own history and experience and the way it drives their behavior. From their subconscious, and this applies to everyone, all kinds of emotions, facts, prejudices and ambitions surface all the time. Would you hand the steering wheel of a large conglomerate to an individual? I’m not even talking about the psychopaths, narcissists and others.

HS – That’s what Manfred Kets de Vries says: The system selects narcissists, people with a personality disorder… you surrender yourself to those character types. So, these organizations are both too focused on shareholder return as we discussed earlier, and they put people on a pedestal and make them dictators for a while.

DK – Well, people think that Trump is unique, but that isn’t the case. There are a thousand Trumps in America, possibly more. I experienced that with CEOs of American airlines, yelling, slamming doors, ad hominem attacks. They call it the Virtues of Antagonism. “We will only achieve something if we try to cut each other’s throats, fight like real men. Then our creativity is mobilized to the maximum.”

HS – Only then do you become inventive, then you become cunning and smart. By wanting to win you come up with the best ideas, and whoever has won has the best ideas. It’s Darwinian.

3 BENEFITS OF EUROPEAN CAPITALISM

Now let’s turn to Europe. You’ve described the European company: it pays attention to something else, which is value creation. It takes the future into consideration and looks at the cash flows that arise, the opportunities and the risks. Then you must have a good story about your coherence and good insight into what is to come — that is entrepreneurship!

But European business is starting to look suspiciously like American business. We live in a global world, Donald. Aren’t you naive to think you can still build a fence… or do you want a wall around Europe?!

DK – Europe has all sorts of major benefits, we’ll get to them in a moment. One major strategic advantage is that capital provision of the business community does not run via the stock exchange. Broadly speaking in America, 80 percent of the capital comes through the stock exchanges, 20 percent through banks. In Europe, the order is reversed: 20 percent stock exchanges and 80 percent banks. I see the stock market as the conduit through which the American model is imposed on European companies. It is therefore no surprise that with a few exceptions, all European listed companies have adopted the American model. Deutsche Bank is the most Anglo-Saxon company there is. See what happened to Unilever.

HS – As soon as we look at the AEX, we look at American business?

DK – Yes, you can see that a few companies like DSM are trying to evade that, but if they spend 200 million extra on innovation they find that difficult to explain in the City.

HS – “We can’t approve of this project because we do not like these ratios.” It means you must destroy value if you want to receive money, right? “You will only get our backing if you are willing to destroy value.” That sounds — it would almost turn you into Marxist — it seems so stupid to me, because I was always told that capitalists understand their real interest very well. Here, they seem to be kidding themselves because they lose in the long run, right?

DK – Yes, but it makes sense because individually, people on both side of the conference table are much better off.

HS – It’s a pyramid scheme! You take [the profit] yourself and your successor will have to deal with the consequences.

DK – Coming back to the listing of companies. Europe has the great advantage that most companies here are not listed on the stock exchange. This is frowned upon in the Anglo-Saxon world, because you have insufficient access to money, you cannot grow… but if we look at the average American company and the average European, there is no comparison. The average transport company in the Netherlands or the average transport company in America, it’s a world of difference. Modern, advanced, efficient, innovative — but we don’t see that and that is because of the Facebooks, the Netflixes and the Amazon that play such a dominant role. They are just a few, they are white crows.

HS – I hear from people who have been there (and I myself have been a few times, though I would not call myself an expert) that as soon as you leave New York or Silicon Valley, you enter a rather backward country. It’s a country with at least two, but possibly three or four faces.

DK – But even if you look at what they consider to be their most advanced companies, take the S&P 500… There is already a bias in the index because over time, the bad companies have been taken over or have disappeared from the index… but you see only a very slight increase in labor productivity between 2008 and 2018. That is one of the criteria that is crucial in a European company. Companies are supposed to become smarter all the time by investing and by improving work methods, by training their staff, by better management, the so called multifactor-productivity.

HS – Is it a kind of multiplier effect? We [Europeans] have a very high multiplier from every hour that we invest. They have to work much longer for the same result — something like that?

DK – Yes it is: we know that Americans do not take a vacation (HS – Two weeks) and we know that the French belong to the most productive workers in the world: they just work far fewer hours than Americans.

HS – That’s a nice indication, the number of vacation days as an indicator of the productivity of an economy, could that be true? It also applies to people: some people I know who often go on holiday are usually not doing badly! Free time as an indication of the use of your working time… Americans get some national holidays and a little vacation.

DK – What is also shocking: the employment rate in Europe has risen to 70 percent in the last ten years; in America it has leveled at 60 percent.

HS – So in all respects they do not use their potential… except in use of raw materials, which they quickly burn through! And that more or less for free.

DK – Back to those big companies. If you take the 15 Netflixes and Amazons out of that S&P 500, you have to conclude that 475 companies have not improved their labor productivity for ten years. What do all those MBAs do all day? And those trigger-happy legal departments? It’s really shocking.

HS – And now to the European economy… is there such a thing as a European economy?

DK – There is a European way of doing business.

HS – A style, a culture, a way of acting that you can call European. Can you characterize it? How do you recognize the European in terms of his entrepreneurship?

DK – Well, it’s not just culture, it’s also simply the law and regulations. For example, continental law stipulates that partners are bound by the principles of good faith when drawing up a contract. Fairness, reasonability. So, you and I can negotiate, we can make it difficult for each other, but we cannot cheat, we cannot mislead and we have the intention to close the deal.

HS – Don’t string the other party along, thereby putting them at a disadvantage: then you either pay up or continue.

DK – There is such a thing as pre-contractual obligations: we can’t just talk for a month and then one of us says ”Well, this was fun, goodbye.”

HS – In layman’s terms: if you buy a house, then you’re in for at least 10 percent — which is also a kind of pre-contractual obligation. The deal’s not yet closed, but you can’t leave the negotiations unharmed. This will keep you focused.

DK – There are also post-contractual obligations. If I know that I am not going to renew our contract, which is fine of course, then I could write a letter 24 hours before the contractual deadline, but I can also call you months in advance and say: “For these reasons I will not continue,” allowing you to find other partners or reduce damage in another way. That does wonders for my reputation as a partner and saves you money.

Now, if we zoom in on innovation: if there is a new initiative in one of my companies, a new medicine that we want to develop or a new diagnostic method, then I know one thing for sure: I need to work with two or three other parties, right from the start. In the Anglo-Saxon system, I must exclude all unwanted behavior of all parties in all contracts. That is unworkable.

HS – Everything is allowed, except what is explicitly prohibited, by law or by contract? So you have to close all the gaps, because if there is a gap it will be used.

DK – Exactly, and this will take us 2 to 6 months. The entire business opportunity will already be gone by then.

HS – What do we do differently and thereby, better? We are bound by good faith, decent behavior, we don’t have to write everything down? There are principles that we must adhere to, even though we haven’t explicitly included them?

DK – It is of course possible that you do get into conflict. If you end up in court, the judge will ask: “What did you actually want to achieve when you entered into this cooperation?” He is going to fill in the apparent wholes in the contract retroactively: he goes back to the intention, what did we want to do together?

HS – He is not going to view our case legalistically, what are the terms and have you formulated them properly, that is up to the lawyers. That judge focuses on our intention and forces the lawyers to take that into account.

DK – There are limits of course: if you enter into a certain agreement clear-headed, and it turns to your disadvantage, that’s your loss. (HS – The judge cannot protect you against stupidity.) But there are gray areas: “Are we going to enter that market or are we not going to engage that partner…”

HS – Then it is up to the judge to say: Is this cunning or just smart? You could say that we have a somewhat softer, more intentions-driven legal system that doesn’t spell everything out but is based on principles rather than rules, it’s more principle-driven.

DK – Principle-driven, but that doesn’t mean softer! You must think harder.

HS – Oh, it forces you to think more clearly! So you can’t leave it to your lawyers, but you yourself, the entrepreneur has to think what he wants instead of outsourcing it: “Just seal everything up.” You spend less money and incur less overhead and can concentrate on what is really productive.

DK – And you build a relationship of trust with your partners.

HS – This of course explains the enormous proliferation of lawyers in the US, which is an extreme sport.

I read the term Hidden Treasures with you. What are the jewels we lose if we are not careful, what constitutes the power of European entrepreneurship?

DK – This was one hidden treasure, contract law and everything related to it. I have formulated ten European hidden treasures in the book I’m writing with Andrea Renda of CEPS, but treating all ten will go beyond the scope of this conversation.

Another one: What many don’t yet realize is that the European patent system is superior to the US system, let alone China. The requirements for a patent are much stricter and there must be a technical component. This way, you have protection where you need it, as the development of a technical finding requires the building of expensive prototypes and eventually expensive plants and equipment. You won’t get financing backing for your findings otherwise.

HS – For me, that would be the explanation why BMW has those beautiful engines, the 1.8, and the Americans have 6 liters. You need high-quality technology to achieve such power and durability with such a small liter capacity.

DK – This is based on patents, and thanks to the fact that they are awarded to them, they can afford to develop and invest in it.

HS – There are two sides to patents: they also exclude others. There is a tendency to say: Shouldn’t you break it open, is patent shielding wise? ‘Open source,’ you sometimes hear.

DK – The original intention of the patent system is just that, to throw it open: after the granting of the patent you can license. BMW has the technology and uses that for its own purposes but can sell licenses to competitors or outside of their industry. This is how technical progress works.

HS – Now I understand how the 1.8 suddenly appeared in all cars although it was an invention of, in this case, BMW. The technology appears in all cars because BMW can negotiate a fee, they can sell it without fear of losing their investments.

DK – Yes, if it is useful and if it doesn’t hurt BMW too much. They keep many findings for themselves.

HS – That suspension system from Citroën. They didn’t sell that because it was so unique, it was central to the Citroën experience!

DK – So the patent system is transparent, but of course you need to pay the inventor. This is how tech enterprises are founded, combining different technologies and designing a smart interface. You invent one or two that prove patentable, the remainder you have to license in. An extreme case is the mobile-phone industry, hundreds of licenses going back and forth.

HS – So (counts on his fingers) patent law, the way in which we shape corporate law, the way in which we deal with stakeholders… I kind of fancy that stakeholder notion, but you don’t, do you?

DK – No, I am not at all in favor of that, because I see institutional advocacy getting in the way of innovation.

HS – Okay, so it’s slowing down the European company. You could say, we could take a leaf out of the Americans’ book there, or am I going too far again?

DK – What I find very worrying: now that more Europeans are starting to see that the American model has major disadvantages, many immediately opt for the stakeholder model, but you must not forget that this was the [leading] model in the 1970s and ’80s, and that it was completely wiped out by the American model within a couple of years. We already discussed the inherent weakness of the stakeholder model, so I would advise against making the same mistake twice.

HS – Because that creates slow companies, very slow decision-making. A sleeping concern: that’s what Philips was called: every decision had to be vetted, and in the meantime the competition ran away with the goods.

DK – Exactly. Central to that European company is: there’s only one interest, and that is the interest of the company. Interest of supervisors, management, employees, shareholders and stakeholders are all subordinate to the company’s.

HS – So you stay true to your American education, that was obviously taught there… Or no, that was about profit, not the company.

DK – It was about the shareholder. At the start of an MBA training, 85 percent believe in the central role of the shareholder, and after two years the number has risen to 99 percent. These people populate the management ranks of American companies.

4 THE HIDDEN TREASURES

HS – I wanted to come back to those hidden treasures. You emphasize them because you are worried, right?

DK – First off, I started looking for an explanation for the fact that European companies are doing as well as their American counterparts. That is remarkable because American companies enjoy the benefits of one language, one homogeneous market, one legal system, one tax system, the deepest capital markets, the best universities — all things Europe does not have. We do not even have a common market for services, and yet we are doing as well, if not better. That’s how I came up with the hidden treasures, unique competitive advantages that help to explain this anomaly. People aren’t aware how rich Europe is.

The next step is of course to preserve and defend and, evidently, to strengthen these hidden treasures. So, coming back to that example of the legal system and the courts that support it: I find it indefensible to cut budgets for the judiciary system year after year. (HS – We are destroying the sources of our prosperity.)

Our first concern should be the rule of law; no economy can thrive without it, but in practical terms we now are in a situation in which small and medium-sized companies de facto have no access to the legal system. It takes too long, it can be very expensive, it is too distracting.

HS – Time is money, and then also the costs… so you abandon it. Then it becomes the law of the strongest?

DK – Absolutely. My agenda — because that’s what it’s turning into — is not cheap, it’s focused on different points.

HS – I hear you say: Invest in your strength, build on it and do not economize on it. Do not act like those companies that only pay attention to shares price but start investing with a vision of the future, and of the opportunities and threats that will manifest themselves there.

DK – There are a few favorable developments. In the Netherlands there is now a commercial court in which you can litigate according to Dutch law, but in English. That is a big improvement, because all those foreign companies that come to the Netherlands — among other things exactly for the independent and expert judiciary — you help them even more. (HS – You offer them legal certainty but also access.). You can understand it. You are not dependent on interpreters; you can follow the proceedings all for yourself.

HS – We internationalize without giving up the power of Dutch law because that is a local benefit. I remember how many companies left Russia when it became clear that there was no legal certainty, and doing business was very difficult.

DK – And now in Turkey, there is an investment strike going on because companies are no longer sure that their interests are being weighed.

HS – We’re talking about your upcoming book, right?

DK – We’re talking about a book called Hidden Treasures, yes. For that, I worked with CEPS, which is one of the large Brussels think tanks. We are now in the final stages, working on the recommendations. The intention is that we end up in the files for the new commissioners that are currently being installed.

HS – What I’m hearing is the solitary Donald Kalff, who wrote a book in which he made very valid points, but he was on his own… Something has happened, you seem to become more interested in the effect of your ideas.

DK – It’s true that my book writing has had little effect so far. People find it all very interesting but… now, with Hidden Treasures I connect with the existing agendas in Europe to strengthen innovation and growth. Nothing to the detriment of those agendas, by the way, I’m just adding to the work program.

HS – Are you being heard?

DK – Earlier this year, we had a big conference in Brussels and there was a lot of interest. It didn’t take much effort to involve commission officials, so that’s hopefully a sign of things to come.

HS – You have a chance of being taken up by officials. They are interested in thinking that they can use in their own work. You help them do their job well, you lobby for a strategy, for a way of thinking. But you are not a lobbyist, are you? Because now would be the time to say so!

DK – (laughs) No, I tried to get an entry pass for Barleymont, the seat of the European Commission, and that didn’t work because I didn’t represent anyone!

HS – You obviously must serve an interest. If you say: “This is my thinking that I want to put on the table,” they will say, “Well mister, first you have to tell us on whose behalf you’re doing your thinking for.”

DK – The timing is also fortunate because… you don’t see it clearly yet, but Brussels has had a big boost after Brexit. Much more is possible these days.

HS – They were asleep and now they’re active again. Perhaps Europe needed a bit of a slap in the face.

DK – If you believe in the negative impact of the Anglo-Saxon legal system and the Anglo-Saxon way of doing business (HS – Good riddance!) the fiduciary duties and so on, this is of course a blessing.

HS – The continent is closed, there is fog in The Channel… is this perhaps a blessing in disguise?

DK – No blessing in disguise — a blessing, pure and simple! (HS – Europe can focus its core again.) Corporate governance is another good example. There is already such a thing as the European Enterprise, the SE, a legal entity that can be used by all companies in the EU. However, the SE is everything and nothing, an unhappy marriage of Anglo-Saxon and continental legal traditions. It even has a separate protocol to do deal with co-determination, alien as that is to the Brits.

We can now redesign the SE and make it consistent by applying continental legal principles. We can also create an SE for small and medium-sized companies. Previous attempts to do so have always been thwarted by the UK.

HS – There is much more to discuss, so we will meet more often — but this was the conversation we recorded. Thank you, Donald.

DK – Thank you very much, Harry.