Cinderella's Slipper
Posted By Rob Millard - 0 Comments -
What was Cinderella’s slipper made of?
As just about every person who grew up on European fairy tales would know, the answer would be “glass.” But .... as Pascal Costantini, managing director in Deutsche Bank’s Global Market Research, points out in my current bedside reading Cash Return on Capital Invested: Ten Years of Investment Analysis with the CROCI Economic Profit Model 
As we all know, Cinderella left the ball in her pumpkin carriage leaving the poor prince stranded, but he tracked her down by having every girl in the kingdom try on the “glass” slipper that she had left behind until he found the only girl that it fitted .... and that of course was Cinderella! It doesn’t say much for the impact that she made on him that he couldn’t recognize her otherwise, of course, but that’s the story.
In Charles Perrault’s original text in ancient French, the slipper was made of ‘vair’, pronounced the same as ‘verre,’ which indeed means glass. ‘Vair’, however, means squirrel fur … a far more sensible choice when it comes to fine footwear if not for squirrels. Because of the error in translation, generations of children have had to try to visualize poor Cinderella negotiating the dance floor in her slippery, presumably transparent and very fragile slippers. On the bright side, it is fortunate that the translator was not of German extraction, otherwise the word may have read sounding like ‘vair’ as in ‘fer’ (the letter ‘v’ is pronounced ‘f’ in German) and poor Cinderella may have had to wear slippers made of iron to the ball!
Costantini’s point in including this ‘tale about a fairy tale’ in a book about asset valuation is that the universality of a belief is not a guarantee of its validity. There are many such examples of this in the field of legal services, for instance:
- PEP (“profit per equity partner”) is the best measure of the performance of a law firm (it is only the best measure of how effectively the partners can strip cash out of the firm.)
- Law firms can be reliably valued on the basis of the NPV ("net present value") of future fee earnings (only if one realistically factors in the risk of the “machines walking out of the factory” if they don’t like the new owner…. now there’s something on which to build a latter-day fairy tale…. but more on that in a future posting!)
- All we need to do to make people work harder is to modify the compensation system to reward production more (this holds as little validity as “if we modify the compensation system to reward originations, everybody will become stellar rainmakers.)
In times of change, it is even more important than usual to rigorously challenge assumptions .... even if they are so widely held that they would never normally be challenged. How many “glass slippers” can you think of in your firm?
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