Creating entrepreneurships: form of entity; management provision concerns; dispute resolution provisions; growth provisions - identification of rights and responsibilities of participants in entrepreneurship including allocation of risks.

Position:Canada-United States Law Institute Annual Conference on Comparative Legal Aspects of Entrepreneurship in Canada and the United States - Discussion
 
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INTRODUCTION

Silvana Alzetta-Reali

MS. ALZETTA-REALI: Good morning. The second panel discussion today is about creating entrepreneurship, and we have with us today Michael Wager and Gail Lilley. Both Ms. Lilley and Mr. Wager are frequent speakers at various conferences.

As our discussion of the morning topic evolves, the decision was to take a step back and look at the creation of entrepreneurship from a policy perspective first, and then focus on the actual processes involved, such as, the choice of entity, the allocation of risk, responsibilities, and the like.

So I will now pass the baton over to both Gail and Michael who will be presenting in a tag team formation.

UNITED STATES SPEAKER Michael Wager *

&

CANADIAN SPEAKER Gail Lilley **

MR. WAGER: Silvy, yes, we are going to do this a little differently. Rather than having Gail and I present for 30 minutes each, on the entity choice issues, allocations, responsibilities and the prospectus on the American-Canadian side, we thought it would be interesting and more engaging if we presented on an interactive basis.

We also wanted to step back and talk about some of the underpinnings of the policies and laws as they relate to entrepreneurship. I did not realize, however, at the time we made that decision, that we would be following a distinguished panel, and, in a sense, we would be trying to enhance on observations of entrepreneurship after David Morgenthaler had made his presentation, but we will do the best we can.

When talking about the context for creating entrepreneurship, we ask the fundamental questions about what is, or who is, the entrepreneur, and what are the political, economic, and social environments in which entrepreneurs are grown.

Certainly, we embrace and celebrate the entrepreneur in American popular culture. However, I think David Morgenthaler said that was not always the case. I think he said early in his career that someone said that he was an entrepreneur, perhaps, because he could not hold a job. Today that is certainly not the case. From an academic perspective, and from the perspective of those of us that practice in the field of corporate law and, certainly, in the business world, entrepreneurs are, in fact, celebrated for not only the product of their labors but the way they engage in the world.

They are, if you will, the Evangelistic indigenous growth in America, and I expect the same in Canada. In historical and geopolitical laws, American capitalism has already been the counterpoint to centralized economies, which raises cross border questions of why entrepreneurs do not thrive in other types of economies.

It is clearly accepted wisdom that entrepreneurial activity equates to economic growth over the long-term. But it raises some chicken and egg questions, which hopefully our presentation will begin to answer, or at least raise as an acute question. The first of those causality questions is: Does capital and access to capital attract entrepreneurs, or do entrepreneurs attract capital? And then another interesting question is: Does U.S. public policy and law drive, or even support, entrepreneurship?

With regard to U.S. public policy and legislative initiatives, or in my own view sometimes obstacles, we find that perhaps there is not a coherent strategy, either at the federal or state levels. I have observed that from a variety of different perspectives in my own career and experience.

Though, notwithstanding the fact I am a practicing lawyer, there was a tour of duty in my life as an entrepreneur, albeit it was at a time when it was not easy to be perceived as an entrepreneur. In the late 1990s, I was involved in a technology company in Denver, Colorado. I was the only fellow, of 300 people, that showed up with a tie. I became known as the tie guy. At this stage, I was not an entrepreneur, but I did observe that I was the oldest employee of the company, which was not yet 50 years old.

Dialogue with company employees in Colorado was different than my dialogue with people in Cleveland, and I think the reason for that was that the view of what an entrepreneur was was really quite different. In Colorado, companies talked to people in civic life or engaged in policy or politics.

If you asked some of the people in this region, or in mature rust belt cities, what an entrepreneur was, sometimes you got a simple response: an entrepreneur is an individual who is self-employed and wants to be his own boss. If you went back and looked at definitions in state addresses or other pronouncements by politicians, you got a list of definitions of an entrepreneur, which I will read to you.

Entrepreneurs are people who have different capital needs. (1) Entrepreneurs add value to the economy and generate a higher rate of return on public investment. (2) Entrepreneurial businesses expand rapidly, and entrepreneurs are more dependent on constantly changing technologies. (3) Entrepreneurial businesses have high growth potential. (4)

Also, taking a very local view, entrepreneurs are cash importers because they sell products and services outside of the state. (5) Entrepreneurial companies are defined by revenue growth, and their resource needs differ from small business in magnitude and kind. (6) Finally, entrepreneurs need greater access to research and development resources. (7) These are all different ways of looking at entrepreneurs.

From my own perspective, I think what would differentiate entrepreneurs ultimately from small businesses, is that they seem to be individuals who require some level of independence in the utilization of the resources made available to them. Also, there are risk barriers, which make them different from other kinds of small businesses. On that point, size probably does not matter.

One of the questions that we may address today is whether or not there are differences, cross border, in the characteristics of an entrepreneur. This is something that I am not sure about with regard to the U.S. and Canada, but certainly, I have observed entrepreneurs during my experience in the U.S., and in experiences that our firm has had in emerging economies in Eastern Europe and other parts of the world.

But as we observed earlier, there are cultural and demographic differences even within the U.S. regarding the definition of an entrepreneur. I think this has had an effect on state and federal policy and law addressing entrepreneur activities. The general question that we perhaps want to raise in the backdrop is whether governmental intervention is, in particular government policy and law, effective. Is going beyond Adam's invisible market forces worthwhile?

Should government be involved in policy and law beyond mere encouragement? In fact, when government gets involved in going beyond statements, creating policy and programs, does it have the intended effect? In 1999, during the height of the tech boom on Wall Street, a study was done, which looked at the state addresses and inaugural speeches in 36 states in the United States. (8) Even at the height of that euphoria with regard to entrepreneurs and technology companies, only 25 percent of those speeches and political pronouncements talked about entrepreneurs and expanding businesses. (9)

And in those 36 states the programs that they had were inactive. (10) The tech transfer programs or capital programs, R & D programs and work force development programs, actually proceeded like the Small Business Administration ("SBA"), (11) which we will hear about in this conference. These were generally broadly based programs, which for me always raised a question of whether or not policy and law have an effect on entrepreneurial activity and the development of entrepreneurs.

Here in Ohio, the Department of Development has been involved on and off over a period of years in tax incentives, specifically identified as drivers of job creation. (12) Yet, in 2002, when a study was conducted on companies that were given job creation grants, it was found that for those companies, there was no net job increase as a result of the investments made by public dollars. (13) So again, does government intervention, going beyond the invisible hand, have the effect we want in entrepreneurial activity?

As a counterpoint to those observations about U.S. policy and law, here is Gail Lilley with the Canadian experience. Gail, does Canada have anything different, or does it reflect the same?

MS. LILLEY: I just wanted to make two preliminary remarks, one being that I was fortunate enough to attend Case Western on the Case Western exchange program a number of years ago, and I think it was a very formative experience, and I think it is a wonderful program.

The preliminary comment I wanted to make, which I frequently make when I am speaking to Americans, is that the population of Canada is smaller than the population of the State of California. (14) So it is difficult to really have a true comparison of the U.S. and Canada, but I think this statistic is always important to keep that in mind.

When I started to think about the topic for this morning, I thought I would find out what our government is saying about entrepreneurship, and the quotes you see up on the screen are statements that were made by our Minister of Industry in September of 2006, "Features of the Value of Entrepreneurship." (15) Those are very strong statements. It is felt all Canadians want entrepreneurship. It is also a bit of a political statement, by supporting entrepreneurship through tax relief and red tape relief.

Now, there was a captive audience--speaking to a chamber of commerce group in Saskatchewan--but it was an important statement, which reflected government and entrepreneurship. I also thought it was interesting to look at a couple definitions of what an entrepreneur was, and I thought it was interesting I chose the same definition as Douglas Barber.

That may be a Canadian thing, or perhaps a French bilingual thing, but that route to...

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