As the standard prospectus language goes, ``The Company currently intends to retain earnings for use in its business...''. Fine, but precisely how? It's when faced with answering this question that the chief executive of a New Technological Corporation begins scribbling notes for his book, ``Technological Leverage--Problem Or Curse''. Once a company has amassed a pool of capital adequate to ride out any conceivable financial cataclysm and respond to a competitive assault by any of the players who might challenge the company's position in the market; is promoting its current and emerging products and developing and maintaining its product line from current cash flow; is paying corporate taxes in the highest bracket; and is still generating piles of cash, this question becomes not just ``a problem it's nice to have'' but one that demands an answer.
The realities of technological leverage and the prevailing cost of money make the answer hard to arrive at. A New Technological Corporation seems to be what every investor dreams of in times of high interest rates: a business whose return is comparable to the debt securities that contend with equities for the investor's cash. Unlike the takeover target whose management cannot reinvest earnings with an expected yield competitive with riskless Treasury Bills, and must be compelled to return the earnings to their shareholders by the reality or threat of a leveraged buy-out, the management of a New Technological Corporation faces a different dilemma: the earnings of their corporation are exemplary and yet they cannot reinvest them at comparable yield, not because yields in the company's business are below those of the debt market, but because throwing money at Research and Development is like pushing a rope; it does not reliably generate the ideas and products from which technological leverage and future revenues flow.
Since the company's earnings come from the unpredictable results of Wild Talents, the company should obviously take every step possible to attract, retain, motivate, support, and efficiently translate the yield of its talent resources into products. But while that process may seem wasteful, inefficient, and indulgent of spoiled eccentrics, the business reality is that it doesn't cost very much compared to the earnings of a successful New Technological Corporation, so taking this obvious step (though neglected by managements that fail to understand their New Technological Corporations) does not materially affect the deployment of the earnings of the enterprise.
Editor: John Walker