Jerry Smith

From the Rebuilding Native Nations Course Series: "The Politics-Enterprise Balance"

Producer
Native Nations Institute
Year

Native leaders and scholars share their thoughts about how Native nations can effectively manage the relationship between their governments and the businesses they own and operate. 

Native Nations
Citation

Grant, Kenneth. "Building and Sustaining Tribal Enterprises" (Episode 4). Native Nation Building television/radio series. Native Nations Institute for Leadership, Management, and Policy and the UA Channel, The University of Arizona. Tucson, Arizona. 2006. Television program.

Jorgensen, Miriam. Native Nations Institute for Leadership, Management, and Policy, University of Arizona. Spearfish, South Dakota. April 19, 2011. Interview.

Morgan, Lance. Native Nations Institute for Leadership, Management, and Policy, University of Arizona. Tucson, Arizona. January 14, 2008. Interview.

Pico, Anthony. Honoring Nations symposium. Harvard Project for American Indian Economic Development, Harvard University. Cambridge, Massachusetts. September 2004. Presentation.

Record, Ian. Native Nations Institute for Leadership, Management, and Policy, University of Arizona. Spearfish, South Dakota. April 19, 2011. Interview.

Smith, Jerry. "Building and Sustaining Nation-Owned Enterprises." Emerging Leaders seminar. Native Nations Institute for Leadership, Management, and Policy, University of Arizona. Tucson, Arizona. March 26, 2009. Presentation.

Taylor, Michael. Building and Sustaining Tribal Enterprises seminar. Native Nations Institute for Leadership, Management, and Policy, The University of Arizona. Tucson, Arizona. 29 March 2007. Presentation.

Ian Record:

"Separated model, in many cases, it's a loaded term. It's saying, 'We're going to separate this stuff.' And it's really, 'How do you manage that relationship? How do you strike that balance to where, you know, the nation is ensuring that the business entity has the best chance of success and then the business entity in turn is ensuring that it's advancing the vision of the people and its priorities for the future?"

Anthony Pico:

"We have learned experience brings wisdom. The first rule is that businesses cannot compete successfully when the decisions are made according to tribal politics instead of business criteria. This doesn't mean that the tribe must abandon control, it means that the tribe must develop strategies and policies and execute oversight that guide the actions and decisions. The strategic question the Viejas council engages should not be, 'Who runs the mailroom?' but 'What kind of society are we trying to build?'"

Kenneth Grant:

"There's a real difficulty in separating the roles with government-owned or tribally owned enterprises, people wearing multiple hats at the same time. And so you're a citizen of the tribe and yet you're also a part owner of the enterprise. A council member is a, has governing responsibilities, is also an owner, is also a citizen. That collapsing of the distance between government and business often creates a lot of role confusion for tribes that is difficult to overcome."

Michael Taylor:

"Dividing the business operations from the politics of the tribal council is perhaps not a panacea, but it's necessary if the tribes are going to succeed with their development. And all the years that I've worked on reservations and I've worked in the tribal facility always, I've always worked directly for the tribe, the struggle has been how to figure out ways to deal with this problem. We need to develop our resources, we need to pay attention to taking those resources that we have and maximizing [them] for the benefit of our people and creating institutions that last, both governmental and business."

Miriam Jorgensen:

"You know, the challenge I think about the most, because I think it's the place that has the greatest fears raised for tribal council folks, for, you know, the political leadership, is the fear of just not knowing what's going on at that corporation. And that just means that there have to be mechanisms in that separated model for information flow, and a lot of times, initial documents that create corporations specify some of this information. It may say, you know, you have to have an annual report to us, and that annual report, you know, has to happen on such-and-such day, or the third council meeting of the year or whatever, but I think the most contemporary learning on this suggests that that's not really enough. What tribal councils need is some assurance that they're going to get information more frequently and probably a little bit more intimately. That doesn't mean that they've got the right to go in and ask the CEO of the corporation or the board of the corporation lots of questions every day all the time, but rather that the corporation has to have mechanisms that are both formal and informal for communicating adequately with tribal council to sort of say, 'Here's the stuff you need to know, and we'll give you more detailed information at our annual report time' or whatever. Different nations have handled this in different ways. I know that you've spoken with Lance Morgan, who is the one who told us what I think of as one of the best examples of this, is just offering the tribal council training for new councilors. Anytime somebody is newly elected that they get to learn about HoChunk, Inc. through a tour and an orientation. There are also tribes that require say quarterly reports that might be much shorter than say the annual reporting-in, but just to sort of update on here's where things are at. So whatever's going to work for that tribe that's not micromanagement and too much oversight, but actual good communication back that maintains the balance."

Lance Morgan:

"Well, managing a relationship between the business side and the political side is a very big deal. We've been doing it now for, I guess, almost 12-13 years. And when we started off, we had a formal set of rules. This is basically, the tribe would do this and the board would do this. And what's happened is that, as issues emerge, as we evolve as an entity, we continue to give more information. I mean everything's kind of slanted towards more sharing and more information rather than less. We still have to maintain certain differences, certain walls, you know. Things like keeping the tribe out of personnel issues and things like that -- just base, functional things that we have to do as a corporation. But in terms of the relationship, everything that we have done has gone towards more sharing and more information. And I think that as you do that, that's very helpful as long as you maintain the core differences, the core separations that allow you to continue to function independently."

Jerry Smith:

"The first lesson I learned is that maintenance of the separation of tribal governments and businesses is a very delicate balance. For example, tribal membership's demand for per capita could definitely affect you as a business. And, given the hands of people in a tribal governance role, they may have an agenda to get more money out of you. And from a business standpoint, we can only give what we can afford to give to the tribe. And so, political factors can come in and wipe you out. We don't go promote ourselves and sell ourselves as a service to anybody because, in my opinion, we're still learning how to do this, and if anybody tells you they're an expert at it, I'd like to meet them. I really would like to meet them. But what we continue to try to do is help when we're asked to help. And we've had tribes come to us and ask for help to do this, and the biggest challenge that I've run into in trying to help those tribes is the issue of control, and government does not want to give up that control, especially in tribes that already have ongoing gaming operations. And so, they'll commit to the idea of doing it, but once they understand that they can't go in and fire the manager tomorrow or go in there and do the things they're used to doing, they don't like it. So, you have to manage that every day. I mean, it's something that I have to manage every day. The governor doesn't have an authority to come in and take any actions within the operations on a day-to-day basis, but everybody knows that when the governor shows up on any one of our properties, I need to know immediately and we have somebody there to make sure that he's seen, he's getting what he needs. So you've got to manage that. You have to recognize who the owner is. And so, again, that's a delicate balance." 

Jerry Smith: Building and Sustaining Nation-Owned Enterprises (2009)

Producer
Native Nations Institute
Year

Laguna Development Corporation President and CEO Jerry Smith shares the lessons he has learned about building and sustaining Native nation-owned enterprises, in particular the critical step of creating a formal separation between tribal politics and the day-to-day management of those enterprises.

People
Native Nations
Resource Type
Citation

Smith, Jerry. "Building and Sustaining Nation-Owned Enterprises." Emerging Leaders Seminar. Native Nations Institute for Leadership, Management, and Policy, University of Arizona. Tucson, Arizona. March 25-26, 2009. Presentation.

"Good afternoon everyone. Again, thank you for the introduction. Again, I appreciate with all humbleness the introduction, because I definitely have had a lot of good and bad experiences in the arena that I've been in. But I want to say for the nation-building program -- and I'm asked to participate in a lot of activities and I've had to be selective in some of those that I do involve myself in, because there's a lot going on in terms of what's happening out there -- but I choose nation building because I believe in what they're doing. And they're doing, and it's about capacity building. It's about trying to communicate best practices, so that you don't have to go do the things and make the same mistakes I made. And I definitely made a lot of mistakes in my career as it begins to evolve. I wish that I was in a position that you're in to have an institution to go to, to talk about it. Because in the early 80s, when I started doing this, I didn't have any place to go; I had to do a lot of figuring out by myself. And some of you who work in tribal offices know that's a lonely feeling in there sometimes, sitting there and just trying to figure out what the heck are you going to do. I call myself a rez boy. I'm a rez boy raised on the rez, spent a little time away from the rez going to college but, and then came back to the rez. So definitely I'm home grown and I've tried to understand and tried to do what's best for our community.

I want to start off by a couple of sayings just to give you some idea of how we need to think about this or how I'd like to frame my presentation. One saying is, ‘Success is the point that preparation and opportunity meet.' That's been a very important thing for me in my career, because you don't have success without preparation. And whether you're an individual or whether you're in a tribal environment, you have to continue to prepare yourself to be in a position so that when opportunity presents itself you can grab that opportunity. So if you get an opportunity today to do a partnership in a big business deal, if you're not prepared for that, that thing's going to go by you because as we all know, setting up businesses isn't an overnight thing. It takes a lot of evolution. So if you're not in the process of preparing yourself for that opportunity...I've missed many opportunities in my lifetime because I just wasn't ready for them. And some of these opportunities have never presented themselves again. And so we miss a lot of opportunity. The stimulus package coming down -- how many of us are prepared to take advantage of that opportunity? I think we're all trying to figure it out, right? But the reality of it is that those that are prepared are going to benefit from it.

The other saying I like to say -- and this is something that [is] mainly for youth -- that we need to keep in perspective is that, ‘If you're chasing money, you are not necessarily chasing success.' Give yourself success and money will shadow you, wealth will shadow you. So as we try to achieve...and you would think that this came from a Donald Trump or this came from one of the big Wall Street guys. And they're in trouble now, right? But this really came from a basketball coach, Rick Pitino. And I've enjoyed reading about his story and how he's prepared his career, because there's a lot of things that we do in athletics as teams that are very applicable in business. So I recommend his book. His book is called Rebound and it's a story of leadership.

The other book I recommend is a book that was written by a guy by the name of Marshall and I just finished his book and the book is entitled The Power of Four: Leadership Lessons of Crazy Horse -- the great Lakota Sioux warrior -- and is written by Joseph M. Marshall III. And he talks about a lot of the things that are very applicable in tribal cultures that are very important in insuring that you maintain a good business structure.

So in that regard, I just want to share those with you. I have a limited time so I'm going to go through my presentation here. Again, my name is Jerry Smith and I'm president and CEO of Laguna Development Corporation. Laguna Development Corporation has to be...we have to start with the Laguna economic story. In the 1950s, we were an agriculture-based economy. And then we evolved into in the '50s to the 1980s we were very fortunate, it was very fortunate that a resource was found on our reservation called uranium. In its peak production, the Jackpile Mine was the world's largest open-pit uranium mine, and the Pueblo of Laguna benefited significantly in terms of royalty income from that mine. And I was fortunate to have my education paid for as a result of that resource. But one of the things that has been interesting in that evolution is it brought wealth to the Pueblo Laguna and I'll tell you why that's important.

In the early 1980s, late 1970s, the mine shut down and we went into a very serious period of having to refigure our economy. Unemployment rate went up to about 86 percent and the worst thing or the best thing that happened to me is I got hired as the tribal administrator in the early 1980s, just out of business school. [I] walked into my tribal council -- I was working at construction at the time, I was working with James Hamilton Construction out of Silver City -- and I was called home and asked to show up Monday morning at tribal council meeting. I said, ‘Okay, I'll be there.' I walked in with my cleanest pair of blue jeans and a borrowed shirt from my dad, polo shirt. And I didn't realize that I was there as an interview in front of the tribal council for the position of tribal administrator. And so I walked in to the interview and everybody was in suits, everybody was in ties, everybody looked very pretty and I was in my cleanest pair of blue jeans. And I went through the process of the interview and was asked, ‘What are you going to do to get me a job?' by 90 percent of the tribal council members who were unemployed. And I looked at them and said, ‘Well, all I can do is the best I can and I'll figure it out.' I went home and my mom -- who was then, knew what was going on -- asked me, ‘Well, how did it go?' She was all excited about it. I said, ‘I blew it. I didn't have any answers.' I couldn't commit to them. I couldn't lie to them to tell them I had the solution. So I'm headed back to Silver City, start packing my stuff. Twenty minutes later, I get a call from the personnel officer of the Pueblo telling me I was hired. So you talk about someone learning from the grassroots, from ground zero.

So what we began to do -- because of that impact -- we began to take a look at how to develop the economy, how to reinvent the economy of the Pueblo of Laguna. Again, wealth was not the issue. We had wealth as a result of the uranium mine. We had to develop an economy of employment and continued development of wealth. So we began to develop -- and a lot of the theme of this session that you heard is the need to develop businesses to give its best opportunity for success -- so what we did and what we decided to do -- and again this is a young rookie out of business school. I had to go into my tribal council and get them to understand that you're dealing with two different environments.

When you're talking about governance on one side and you're talking about business on the other side of the table, and there's that line -- that's kind of like this black line on this floor -- there's a line between the two. And it's about -- as I tell people -- it's about learning how to play Monopoly© by Monopoly© rules, and then over here learning how to play Chess by Chess rules. You can't play both sides of the thing by the same set of rules. And there's a whole history and sophistication on how business works compared to how governments work. And so each has to have their ability to operate effectively within those two environments. So I went in and said, ‘You're going to have to give me the authority to separate business from government. You're going to have to give me the authority to allow our development, our business, the environment that it needs to give it the best opportunity to succeed.' And it was great because if I was to go into my tribal council today, I don't know if I could get that decision because of the wealth. As a result of what we're doing now, one of the things that always, is the issue of control and tribal government wants to control. What we're trying to do now with our tribal leadership is try to show them how to control without micromanaging. And the techniques that as owners of a business is different than a governance of a community and a people. So we're having to go through processes of educating them. We've used nation building and our tribal council has been through nation-building sessions. The nation-building folks have been out to our tribal community, have taken our tribal council through facilitation sessions on developing that capacity and competency, so that we can from the business side -- when we walk into a tribal council meeting to report as a business entity -- they deal with us as owners of a business should deal with management and the corporate boards.

So what we did is we created three corporations since then. We created Laguna Industries, which is a manufacturing corporation. We developed Laguna Construction Company, who presently is in Baghdad doing a lot of the reclamation [and] revitalization of Baghdad right now. And then the company I manage called Laguna Development Corporation. We do have somewhat of a non-profit corporation called Laguna Rainbow Corporation and that corporation provides elderly service to community members.

The Laguna entity business structure or model, it's the separation: it's the government model versus the business model. Government and its role and its model provides governance for tribal membership. It's not profit motivated. It's the fiduciary custodian of tribal wealth. The business model is a model where we have to work within the governance of the tribe, which means that if you run a private business in the State of New Mexico you can't divorce yourself from government. Government has a role to play in everything you do. But they provide you regulatory oversight, not day-to-day oversight of your business. So the tribe has to get involved in developing all the infrastructure it needs to be able to provide that oversight. We're profit motive and we're a huge investment of capital in risk-based ventures. We're also the revenue and tax base to the tribe. We're the economic engine that pays probably at this point probably 80 percent of tribal governmental operating needs. And in most tribes, especially with casinos, that number ranges from 80 to 95 percent of revenue that goes to the tribe normally comes out of those kind of activities.

We've explored a number of business structures in our evolution. We started out as a tribal enterprise and chartered under the constitution of the Pueblo Laguna. Then we evolved to a state-chartered corporation. That evolution really was the result of the challenges of the state of New Mexico to tax our income. There were legal opinions coming down that says if you're a tribal enterprise at that time that you would be taxable. So we went to a state-chartered corporation. And then later we got an IRS ruling saying that's not good enough. So then we went to a Section 17 corporation, which then we basically resolved that taxation issue. But as things have evolved, we have also been able to...those other areas have cleaned up in terms of taxation. So I believe today, now you can do any of the three and still be secured in your taxation on income.

But the other thing that, reason that we did that is that...from a tribal environment, not very many people out there -- especially if you're looking for business partners -- understand how you work as a government. And you have 500-some-odd Indian tribes across the country with all unique forms of government. How do you expect a Microsoft or how do you expect a financial institution and investors to try to understand how all 500 of us work? So what we have to do is create an intermediary corporation that they're used to dealing with -- they understand the nature of corporations, they understand the nature of how corporations work. So when we apply and we introduce ourselves to people, they don't need to go back and try to understand how our constitution works and all those things. They understand how corporations work and we can talk at the same level and in the same language. So that was one thing.

But from internally to the tribe, what was important to us was the insurance of protection of tribal wealth. Remember, Laguna had wealth. Laguna had wealth as a result of the uranium mine. And we had to go understand why Donald Trump declares bankruptcy probably every other year but he's still wealthy. And the way he does that, and business is as a foundation a risk-proposition environment. You have to take risk. But you don't want to risk the tribal wealth. In my operations, I could say within the five years of our new property, we've had probably about three people die on our property. And so what you have to be very careful about is the claims that can come at you from people who do things on your property and the liabilities you assume by allowing them to come onto your property. So you're at risk every day. You're at risk for a lot of different things but you don't want to put the tribal wealth at risk as result of that.

So what we were able to do was separate the two through the corporate veil and that's why people set up corporations is they protect their individual wealth from the business wealth and the business risk. So you have this corporate veil that prevents you from doing that, from putting tribal assets at risk. So that was another major reason is that we didn't want to put the tribal treasury at risk. And so if anybody sues Laguna Development Corporation, it's only within the limits of what the corporation owns. They cannot touch tribal assets.

The state of the industry: Las Vegas is down 8.7 percent; Nevada casinos are down 68 percent at the net-income level. Fitch -- who's a rating company that comes in and evaluates your capacity -- tells us that Native American operatives are feeling the same kind of pressures Nevada is feeling and those businesses that operate to a conservative operating file will survive this pressure. You've got numerous retail and F&B closures. Who would imagine that Mervyn's© was going to close? Who was going to imagine that Circuit City© was going to close? You've got a lot of businesses going out of business. And then in New Mexico, we've had a huge expansion in gaming properties with the Ysleta Pueblo property expanding, with Buffalo Thunder and then now the Navajo Nation has gotten into gaming. So there's expansion in the market when 2008 the economy is coming down. So what's ultimately result of that is only the fittest are going to survive. Because you can run an operation and some gaming operations at a 65 percent gross profit level. It's easy to run a business that way. But if things that are happening with your economy are attacking that and now you're having to operate at a 30 percent or a 40 percent gross profit level, it's a whole different ballgame, which means that you have to be a lot more efficient in the way you run your business.

Our success at Laguna Development Corporation -- in a period of time when Las Vegas is dropping 28 percent in '08, we grew our revenue by 15-16 percent. We improved our total company gross revenue. We just don't do casinos. More than 50 percent of our revenue comes from non-gaming activities -- we're in travel centers, we run restaurants, we run...name it, we run those kind of operations. 23.4 percent growth in our EBIDA [earnings before interest, depreciation, and amortization] in '08. We had 115 percent growth in our revenue in food and beverage. We had a 33 percent return on an equity. You ask any investor whether that's good or bad and they'll tell you. Our debt service coverage ratio, our leverage ratios are very good. We actually increased payments to the tribe by 47 percent during this period of time. And again, we're rated from Fitch standpoint as being a very stable company. So as you can see, structure and having your proper environment in place is very good.

I cannot recruit executives today. Let me say, it's very difficult to recruit executives today in our industry, especially in the Indian community. The people I want, the first question they ask me is, ‘Is there a separation between tribal government and the business.' And if you say no, they're not coming, because there's been too many experiences...the average tenure of somebody that sits in my position in New Mexico is one year. That's the turnover for someone that sits in my position in New Mexico -- one year. So there's a huge turnover and the number-one reason why that occurs in their opinion is because of tribal politics' intervention into the business and that they have to worry about, on a day-to-day basis, whether a tribal council family member is going to come up and shoot them. Where in our operation, we do have very much respect for our council and our government and our governor, who's the president or chairman of our tribe, but the governor has no authority to hire or fire anybody in the corporation. And so we have control over day-to-day operations through this model.

Keys to success -- tribal council understood the need to release day-to-day management over day-to-day control. We killed a lot of businesses before 1980 because of day-to-day intervention from political people into day-to-day operations. So the second thing we did is we formalized all our relationships between tribal government and the entity. For example, we have the charters, we have the bylaws, all reported transparency is there -- we provide financial statements monthly, quarterly, all those kind of things -- we also have a formula that basically defines how cash gets transferred. A lot of my counterparts in New Mexico at the end of the month, all excess cash gets transferred over to the tribal government. In our environment we go through a very diligent process of closing the year, closing the books, evaluating performance and we've negotiated a cashiering agreement with the tribal council whereby it's all formula-based. So no politics, nothing can enter into the picture and all the needs of the business are there in terms of supporting the business before any money goes over to the tribe. So from that standpoint, we can get the favorable ratings from the rating companies.

We also have had to help tribal government understand and set up their own infrastructure to handle these kind of entities. For example, we have to make sure that administratively they know how to read the reports -- they know what they're getting, they know how to read it, they know what it's telling them. We also have to make sure from a legal standpoint you have all the things like codes in place -- there's things like building codes, there's things like commercial codes. So if there's a dispute between me and one of my suppliers, they don't need to go run to tribal council. They go through the judicial process and they file as any other community, metropolitan does; they go through the court systems to get their problems resolved. So it keeps a lot of calls from going into the chairman's office from people who don't necessarily, when you find yourself in dispute with. And that happens every day folks and we all know that. We also have to look at capitalization needs and all the way down to things like tribal preference. So we've taken the time to insure that we formalized and put everything in rules so that it's not discretionary or arbitrarily determined based on who knows who and who knows what, that it's consistent. Because one of the things that we have to develop is consistency in applications so we get trust.

The last thing is definitely is adherence to the rules through visions and missions and core values of the corporation. Now as a corporation...I listened to the session before lunch and they were talking about, how do you operate in the business world? Like I can put on a suit and do I have to give up my tribal heritage and my tribal ways for that? I can tell you that my father is one of the top religious leaders in my pueblo. And as one person, he was the one that encouraged me to go on to college. And after I came out of college, I tried to figure out why you sent me there. And then when I come home I get a lot of criticisms about losing my ways from community members. 'You're educated, you lost your ways, you joined the other guys' kind of thing. And one of the things that he helped me understand is that in order to survive, we have to understand and have the knowledge to survive. So we have to go out into this other world and do the things necessary to provide for our families and our community. But you should not have to give up your heart in the process and where your heart values are coming from are from your tribal core values. In our language, we have basically four core values that we're told every day from community leaders, religious leaders is -- and I'll use my language -- it's [Laguna Pueblo language]. And those four things are love one another, respect one another, understand what the way is, understand what the truth is, and live your life by them. And when you begin to run business, when you begin to take opportunities of kickbacks, they present themselves to you. I don't think anybody in this room that's run a business hasn't been given the opportunity to take a kickback. But your core values of right and wrong will tell you not to do those things. So it's very important for our young people to understand that they can be successful, they can be successful in athletics, they can be successful in their careers by using their core values that each tribe, everyone of us has as tribal communities, because you can connect the two. You don't have to give up your heart to survive.

So we run our business on those tribal core values. In fact, the core values of our corporation are tribal core values. And everybody who has gone through a strategic planning session know you have vision, mission and then you set core values. So we didn't see the need to create new core values because we've had core values that our ancestors have given us through time. Why do we need anymore and how can I be more creative than those people? They've given us the menu to success if we just follow it in whatever we experience.

Keys to success from a business responsibility standpoint: you have to hire the most competent executive team you can find. These people have to have the knowledge, they have to have the experience and most importantly they have to have the character. And you have to make sure you insist on knowing the character of a person. So what do I do when I hire executives? I just don't take their resume and a one-hour interview. Not only do I use my gaming commission's authority to go check their background, their criminal, their financial, I want to know everything, as much as I can about the person. So I use those mechanisms to find out as much as I can about the person. I've got my internal networks where I do evaluations on every one of these individuals.

Anybody heard about DISC? It's a tool that you can use to determine whether or not you have an individual that's a driver, somebody that's task oriented; or an I, which is somebody that's an intelligent thinker; or an S, who's a supporter; or a C, who's a communicator. So I want to know 'cause I have to have everyone of those characteristics on my leadership team and I use that tool to tell me what kind of people I have. When I first used the tool, I found out that 90 percent of my managers, my executive team, were Ds. They were all direct, they were kind of like me, go get it, get it done. And so, and it's the nature that you kind of lean towards hiring people like you, but it's not always the best thing to do. What I found out was a lot of people didn't understand what we were doing even though we were doing great things [because] we weren't great communicators. We weren't able to go out and tell people what we were doing [because] that wasn't our nature. So now I make sure I have Cs on my leadership team.

So there's tools that you can use to help you understand who these people are and what you're hiring and what you need in your leadership team. The second thing I do is I send all my people up to a place called Professional Decision-Making, Inc. in Denver, PDI, and they do a complete assessment of that individual to tell you whether or not that person is really an executive quality person. Because for many years we as tribal people have been sucked into thinking that because I can put on a suit and tie that's an executive. You've got to know more about that person because you're entrusting that person with a tremendous amount of resources and decision-making. So you've got to know as much as you can about that person and make sure that person fits your organization. My leadership team I've had with me for about seven to eight years now, and there are not very many people that leave me because of these principles. So it helps your retention, it helps you keep people because they definitely understand a lot of these principles in which you're operating by.

The other thing you have to do is make sure you have the business systems in place that operate in financial human resources systems. You have to make sure that you have transparent reporting not only to...I report to a five-member board that's appointed by the tribal council. So I make sure that the reports I give to them are very, can be verified and validated at any time. And the last thing is that we focus on developing and growing the business not on tribal politics. So many tribes and many of my colleagues at the end of the year that are in positions like me worry about who's running for the chairmanship position and what's going to happen to them. And a lot of them are sending out resumes in that process. In our situation we honor the change in administration, the change in leadership but we don't have to worry about our jobs the next day as a result of that.

Lessons learned -- the first lesson I learned is the maintenance of the separation of tribal governance and business is a very delicate balance. For example, tribal membership's demand for per capita could definitely effect you as a business. And given the hands of people in a tribal governance role, they may have an agenda to get more money out of you. And from a business standpoint, we can only give what we can afford to give to the tribe. And so political factors can come in and wipe you out. We don't go promote ourselves and sell ourselves as a service to anybody, because in my opinion we're still learning how to do this. And if anybody tells you they're expert at it, I'd like to meet them. I really would like to meet them.

But what we continue to try to do is help when we're asked to help, and we've had tribes come to us and ask for help to do this. And the biggest challenge that I've run into in trying to help those tribes is the issue of control, and government does not want to give up that control, especially in tribes that already have ongoing gaming operations. And so they'll commit to the idea of doing it, but once they understand that they can't go in and fire the manager tomorrow or go in there and do the things that they're used to doing, they don't like it. So you have to manage that every day. It's something that I have to manage every day. The governor doesn't have any authority to come in and take any actions within the operation on a day-to-day basis. But everybody knows that when the governor shows up on any one of our properties I need to know immediately and we have somebody there to make sure that he's seeing, he's getting what he needs. So you've got to manage that. You have to recognize who the owner is. And so again, that's a delicate balance.

Due diligence -- I went through this. You have to hire the best you can afford and sometimes you have to hire the person you can't afford. That's one of the 201 business lessons when I went to New Mexico State and went to my first business management class, that's the thing that I remember hearing out of that class is that you've got to...in order for you to be successful, you've got to hire successful people. You've got to surround yourself with successful people. And so it's been my agenda to always hire the best. And not only stop at hiring what I can afford, but I've actually had people that I couldn't afford but I made sure that within a year I could afford them because then they grew my revenue. They grew my EBIDA.

Setting up tribal government and business infrastructure is very critical. The government needs to understand how to interact with this new animal that you created. And that's kind of been one of the struggles of Section 17 and business entities is government not necessarily having the infrastructure to know how to deal with this new animal. One of the ones that kills you a lot is personnel issues. I am the final say. My board does not even have a say as to what the final conclusion of a personnel action internally within the corporation is. That's my decision as CEO of the corporation. If a tribal member does not agree with that, they take me to tribal court. And tribal court through a wrongful termination hearing then determines whether I did the right thing or the wrong thing. So that's an example of infrastructure. So that the council doesn't have to be tied up with that issue because tribal members are complaining about...

And it always happens that they only hear one side of the story. I have grandmothers calling me, I have mom and dad's calling me and these are for people that are probably 40-50 years old some of them. Grandma's still calling me and saying, ‘How come you fired or how come you took this action on my grandson,' or, ‘How come you took that action on my child?' And I will say, ‘I wish I could talk to you about it, but there's something called the Privacy Act. And you take this form; you take it home to your child or your grandchild and have them sign this document. Then I'll tell you what's really in your grandson and your son's file.' I have not gotten one of those back yet because only one side of the story is told and we love the opportunity to tell the other side of the story.

This is a weakness is that tribes normally set up these operations without adequate capital. Most of the business ventures, you're expected to put at least 30 percent equity into a business start-up and tribes notoriously don't want to do that. So that's always been a weakness in tribal economies. The diversification, the economic base, we learned that through the Jackpile Mine when you have all your eggs in one basket. And there's a risk in a lot of tribes [because] the only economic engine a lot of tribes have right now are your casinos. And you're seeing right now that these casinos are not recession proof. There was a fallacy out there that gaming casinos were recession proof. Just look at what's going on in Nevada with the big ones. And then the other thing is that we also have to make sure that we stay business vision and mission focused. It's important for us to maintain that vision focus because if we don't who else is going to do it?"

Jerry Smith: Building and Sustaining Nation-Owned Enterprises (2008)

Producer
Native Nations Institute
Year

Laguna Development Corporation President and CEO Jerry Smith discusses the evolution and growth of the Pueblo of Laguna's diversified economy, and the importance of building an infrastructure of laws and rules in ensuring the success of Laguna's nation-owned enterprises.

People
Native Nations
Resource Type
Citation

Smith, Jerry. "Building and Sustaining Nation-Owned Enterprises." Executive Education Seminar. Native Nations Institute for Leadership, Management, and Policy, University of Arizona. Rapid City, South Dakota. September 18, 2008. Presentation.

“Morning everyone. I was afraid that when she was talking about the pig story, she was going to introduce me as the first pig on the panel. I appreciate being here today to speak to you on the experiences of and growth of Laguna Development Corporation, and in general the Pueblo Laguna. As some of you may know, Laguna Pueblo is located in Albuquerque, about forty miles west of Albuquerque on I-40. And what we have done over the years, my career, I’m very impressed with the academic capacities of the folks presenting to you in Native nations. Some of us on the other side are kind of educated in the school of hard knocks, in that we grew up in the tribal end of the entity at first. I worked, probably, about 20 years on the tribal side working as a tribal administrator for the tribe, and more specifically in the areas of trying to develop the economy of the tribe. And then later in the late '90s, I moved over and began to run one of the enterprises of the tribe. So I kind of have the understanding and experience of both sides of the equation.

My first slide basically gives you kind of a view of where our economy has been over the last number of years. Laguna economy pre-'50s is basically an agriculture-based economy, very entrepreneurial, small business (as I like to refer to them) -- individuals who ran farms, cattle, livestock, sheep. So, as we moved into the '50s, fortunately in our situation, uranium was discovered on our tribal lands. And so we went through a period of tremendous economic prosperity in that, we had at its peak production, the world’s largest open-pit uranium mine, and it provided substantial resources to the tribe as well as employment. We were able to live in a great environment. Unfortunately, that resource, as a result of the anti-nuclear type programs in the late '70s, mid-late '70s, we entered into the down crash of the uranium market. The mine ended up closing in the early '80s. So, from the '80s, as you can see, the tribe began to look at what to do. We had a situation of close to 80 percent unemployment. When I interviewed for the tribal administrator’s job in 1982, the question I recall, the most pressing question I recall being asked is, 'What are you going to do to find me a job?' Asked by one of the tribal council members. And just out of business school, I didn’t have a whole lot of answers, except, ‘I’ll do my best.’ And quite honestly, I was not really looking forward to being hired, because I really didn’t have the answers that I thought they were looking for. But surprisingly, I was hired by the tribal council as a tribal administrator to come in and begin work on these situations.

It’s key in that, for Laguna, it was very key in that, a lot of things we were able to do in the '80s were structure-related issues. We worked on a lot of infrastructure, and the reason we could work on infrastructure is we had the wealth of the uranium mine, which funded tribal government operations. So we had a period of time where we could focus on infrastructure development, which meant we had to change philosophically the way the tribe thought, the way they approach things, and began to take a look at how we could do things different in a way that we could grow tribal enterprises, which meant that we had to do a lot of education. And it was really strange for me, fresh out of business school, to be educating people that were very experienced in tribal operations. A lot of our leadership -- and it seems to be the same way today -- a lot of leadership comes from the federal sector. You know, leadership and tribes come out of the BIA [Bureau of Indian Affairs], IHS [Indian Health Service], HUD [Department of Housing and Urban Development] -- you know, those programs. And so when you begin to take a look at educating tribal leadership in this new mentality, you know, definitely training, educational training had to happen. So we began to develop our tribal enterprises.

Our first project was a project called Laguna Industries, where we stepped in and developed a manufacturing company. And at the time, at this time as you recall, the Defense Department was growing very significantly. So we targeted the Defense Department and developed a company that went after defense work. And the created company that, in its peak, employed close to 350 people and is still today, operating and defense contracting. They have, they’ve done not only manufacturing of electro-assembly products, but they also do a lot of on-site support training for the military. We have teams that go out to Korea, who have been out in Iraq, have been out in Germany, you know, supporting the troops in the systems that are built within the company. After learning this experience, then we were caught with the situation of claiming this open pit uranium mine. So, as we began to work with the company that operated that mine, we began to take a look at, 'How we can build a company, instead of using these dollars to go out and just contract a general contractor to come in and do the mining project?' We began to take a look at how we could do this ourselves.

So we created a second company called Laguna Construction Company. And Laguna Construction Company ultimately came on board, they performed the reclamation of the Jackpile mine and then began to develop the capacity in reclamation remediation and began to get defense contracts to begin to do work, not only within the United States, and did a lot of reclamation. This time as you see military base closures were coming online. So there were needs to go in and reclaim those military bases. So they received initially a lot of work doing that; and then they stepped into, then the Iraq situation came on. Right now they’re one of the subcontractors of Halliburton, doing a lot of the reconstruction of Iraq in terms of rebuilding buildings and doing a lot of the reclamation work over there. So it’s significant in terms of their growth and experience.

The third company we created was Laguna Development Corporation and that’s the company I run. In the creation of the first two companies I stayed on the governmental side, and the companies were set up and we brought in management in those arenas. This third company, I kind of wanted a career change, so I kind of moved to the company and we set up this company called the Laguna Development Corporation. Initially, the mission of Laguna Development Corporation was retail development. We ran retail operations. And if any of you have run C-stores, a grocery store, you know how tough that is because your margins are at the bottom line, hopefully, about 3 percent. So as we began to run those operations, it became very important for us to have the proper infrastructure in place in terms of the business itself. Later on we brought in the gaming operations. So our growth has been substantial. We were created in 1998 and our first year, full year of operation in 1999, we had out $6.5 million in sales. In closure of our books in 2007, we closed our books in excess of $250 million in sales, of which over 50 percent is non-gaming revenue. It’s a substantial effort in terms of trying to diversify our corporate portfolio. And one of the things that we learned coming out of the Jackpile Mine was that, as a tribe, you cannot put all your eggs in one basket. You have to take the opportunity and begin to diversify the economic base because if you lose a Jackpile Mine -- and if any of you and I’m sure a lot of you are experienced or have experienced 80 percent unemployment -- it is not pleasant. It creates a whole lot of social/economic issues for you as a tribe, and it’s very important to keep people productive and keep them working and keep their value system in place.

So as we stand here today, we lost close to about 600 jobs in the closure of the Jackpile Mine. Since then, with the enterprises, we’ve been able to create close to 1,600 jobs within the tribal environment. So as I speak here before you -- and I don’t have any statistics to support this -- but I would say Laguna, as a population base, we’re pretty close to full employment, which is saying that anybody that wants a job can get a job. So that’s been an experience. Now we’re working on the quality of the job. Now we’re working on moving people in their career development towards improving the quality of the job and improving their quality of life, improving their capacities.

Tribal government also benefits because I sat on tribal council in the mid-90s and as a tribal councilman, I began to take a look at where our mix of revenues were coming from. And at that point, 80 percent of our revenues were coming from federal sources, 20 percent of our revenues were coming from investment income off the Jackpile uranium operation. As I stand here before you today, 80 percent of our revenue comes from the enterprises, 20 percent of the revenue [of] the tribe comes from federal sources, federal/state sources. And when you look at that equation, you begin to see why these business development efforts are very important for the survival of the tribe, because I think the only way, one of the ways we can exercise our true sovereignty as tribal people is to be fiscally solvent, so that we don’t have to have our hand out to a governmental entity and take all the flow-down conditions that come with those contracts and grants that say, 'You got to do it this way, you got to do it this way, you got to do it this way.' It’s great for the tribe to have that discretionary money, that money that doesn’t come with any strings, to go out and do the things the tribe wants to do, without having to say, 'Mother, may I?' And if, coming from the tribal side, it’s very frustrating to me to always have to talk to a grant, a contract administrator on the federal side that basically gave me permission to do this or do that or do this other thing. And it really, in my opinion, stymied a lot of economic development in tribes, because federal people are not business people. They are not risk-takers. They are not people that have to go out and lead and be the entrepreneurs to go out and take the risk. They are very low-risk tolerant. So a lot of the projects fell on the wayside because I had to go before an administrator who had no experience telling me what I could and couldn’t do. So in that regard, this money that’s discretionary, this money that comes from enterprises that the tribe has full flexibility to decide what they need to do with -- it gives a tremendous opportunity to begin to take a look at getting outside that box.

One of the things we have to do from a tribal side, is teach our tribal leadership how to get outside that box, because these tribal leaders -- and this is no different than my tribe -- many of them grew up in the federal system. Many of them are contract administrators for the BIA. Many of them ran BIA/IHS programs and have since come back and are working for the tribe. So they’re trained. Their whole career is trained in this federal process and it says nothing’s wrong with them -- I’m not saying anything’s wrong with it -- but on this other side there’s this whole different dynamic that we have to work with and that is risk and learning how to manage risk. And fundamentally, in order for you to be successful in an enterprise, is to be able to understand that and take safe calculated risk; but you’ve got to take risk. So from a Laguna story standpoint, I’m learning as I’m going on, talking to people, a lot of tribes, especially gaming tribes, 90 percent plus of their money now come from their enterprises. So we are no longer federally dependent. We are independent from a fiscal management standpoint, but we’ve got to get out of old habits. We’ve got to get out of habits of letting public policy from somebody in Washington (D.C.) tell us how to run our communities and begin to take responsibility for being creative to develop those communities that fit our situation, which leads me to the next slide, and that is understanding the difference between the governmental model and the business model.

What was very difficult for me, in the early '80s, was to educate my tribal leadership that governments are important. Tribal governments are important. Governments have to exist and have to exist and be effective, but you don’t run a business to a governmental model. Governmental models are there to provide governance to the tribe, to the organization. They are not profit motivated. Ask a tribal budget manager as to what their profitability is for this year and they don’t know. They can’t answer the question. Business models work within the governance of the tribe and that’s a very important point. People think you have to choose one or the other; it’s not that way. The governmental infrastructure has to be in place and the governmental rules have to be in place and stable so that the business can flourish within that environment. So they have to work together. So what you have to do is build the governmental infrastructure in place so that the business can survive because business as a fundamental, any start-up business -- what is the statistic? Sixty-five percent fail in their first year of operation. So you’re already dealing with a very dynamic situation in running a business with a high propensity to fail. So if you move the tribal environment on top of it, you create a higher percentage risk of failure if you don’t have the infrastructure in place to support that.

So in that regard, governance is very important, but it also has to be, it has to provide the energies for businesses to succeed. The other thing is that business model is profit motivated. And that’s one thing our tribal leadership have a hard time with because many of us have to be sometimes in position where we have to say, ‘I am not meeting my EBIDA [earnings before interest, depreciation, and amortization] goals.’ And a tribal leader will look at you and say, ‘What? What is that? What is EBIDA?’ You know, that is a measure of business performance. And as you begin to take a look at the language, it’s kind of like, in some cases, speaking French and English because the terminology is not the same. Even the way that you’re audited is different. Governments are audited to what’s called GASB and I think probably a lot of you know what GASB is. Businesses are operated on a FASB process. And so you have to understand that even the formula and even how things work, are different. So when you go to a tribal leader and say I’ve had tremendous EBIDA performance you have to take the time to take them through what EBIDA means, because they do not have the experience and understanding of what EBIDA means.

And so those kind of things are, there are differences in terms of the name of the game and how the game is played. So what we did over our evolution at Laguna was we tried different business models. We tried different business structures. We initially set ourselves up under tribal enterprises. Now one of the benefits, and we talked about lessons learned at Laguna, was prior to trying to put the structures in place, we killed a lot of good businesses. We killed a lot of good businesses because we just could not keep people in their roles. And one of the strongest influences in this environment is political influence. And what you ended up having was you ended up having political leaders making business decisions. And the business decisions normally were not of quality because they were not being made for the necessary reasons, or the proper reasons why that decision should be made. One of the biggest challenges, for example, one of your biggest expenses in the business is labor. And your revenues fluctuate as you operate during the year, and especially if you’re running a seasonal business. So as a business leader, you have to manage labor and you just can’t have people sitting in an office, twiddling their thumbs waiting for the season to pick up. So you have to deal with the issue. You may have to lay people off or you have to lay them off seasonally. So if you don’t make that decision, then you’re going to be impacting your EBIDA line. And EBIDA is Earnings Before Interest, Taxes, Depreciation and Amortization, and that is how businesses are measured. They are not measured on net income. They are not measured performance from an operational standpoint on what your profit is. It’s basically what your EBIDA is, because your EBIDA is what really tells you whether or not you’re operating efficiently or effectively. So the two things you watch for in a business is EBIDA and cash flow. And if you are not functioning in those areas then you better do something.

So in that regard, we started in tribal enterprises. Tribal enterprise worked, but unfortunately we got into the mix of IRS. And I give IRS a lot of credit for this because we would not have gone through the evolution we went through without IRS intervention, because IRS intervention or interest was to tax our profits. And at that time they did not recognize tribal enterprises as an acceptable structure for them and they basically determined at that time, and this is again in the '80s, that our income was taxable. So we went then and went to a state chartered corporation. So we chartered one of these entities under the State of New Mexico and we were able to get away with that for a little while until IRS came down again and told us state charter corporations are taxable. And so then we went to the structure we are now and all three of the entities I showed you on the board are structured under this is a Section 17 federal corporation.

Now one of the things that this did (and you can go to the next slide), one of the things that it did is it helped educate the government to the point where they understood why we need to separate business from government and why they had to release day-to-day control of the business. And it has to do with something called liability. Because when you’re running a business, the fundamental nature of the business is risk and you have to take risk. Why do private people with money, with wealth, set up corporations? It’s because they’re protecting their personal assets. So they set up these corporations where if something happens from a risk decision in that corporation, their nest egg is protected. Fortunately, at Laguna, we had a nest egg that came from the uranium mine. We had a substantial nest egg. So we were able to approach the tribal council to say, ‘Before you go out and start taking risk propositions you need to protect your nest egg. And we need to build this wall between government and the enterprises so that if something happens within the enterprise, your assets are protected. They can sue the corporation only to the extent of the assets of the corporation. They cannot touch tribal assets.' So with the protection mechanism in place it was very, it helped us tremendously in selling the concept. Now we were a tribe without assets and it’s the same fundamental thing. How many of us own private corporations because how many of us have something to risk and lose? So we don’t really think that way. But when you’re a person of wealth, you think that way. It’s a difference in thinking. So if we were to try to do that today, with what’s going on today, we would probably have a very difficult time. For the reason that tribal, and it’s still happening in all governments, the tribal political factors want to get into day-to-day operations. They want to get into day-to-day control of the enterprises. So how did we define this so that we can protect the enterprises from that situation, and how can we protect the tribal council from assets being touched? It’s called penetrating the corporate veil.

If a tribal leader comes down into the corporations and starts hiring and firing employees, that tribal leader has penetrated the corporate veil. So what happens is they put a hole in the corporate veil and if they’re sued back, whoever is filing the claim can go right back through that hole and get the tribal assets. So as you can see, there’s a lot of education that needs to go on. And a lot of these principles aren’t necessarily understood at the beginning, but as you keep educating, educating, you begin to finally hit home with some of these things. One thing that was very important to us was to formalize these relationships, not just gentlemen’s agreement, not just from one council to the next, because councils turn over quite a bit. So the institutional knowledge of the government isn’t always there. So when you go back to this say, ‘You remember ten years ago we talked about it?’ And you look at the people in the room and they’re all different. No one remembers what you talked about ten years ago. So it’s very important to formalize anything that you enter into in terms of relationship with the government. And you’ve got to treat it like a state government, like a federal government. Tribal government, even though they’re your owners, you have to also understand that they’re governments. And so nobody has a problem writing a grant proposal and signing a grant agreement with the state government, with the federal government. That’s a formulation of what the conditions are and what are the terms and what happens in this situation. It’s very important that we be at Laguna, that we begin to formalize this relationship so that we can retain the institutional knowledge of what was agreed to. So we have charters. We have corporate charters. You can go online, because we’re a federal corporation, you can go pull up our charter. You can see what our charter looks like. Bylaws of the corporation; bylaws are what the board of directors manages the corporation by. It’s their internal rules of the corporation. We have very sophisticated reporting relationships. We provide financial statements to the tribe on a monthly basis. We provide them quarterly financial statements. We go before the council twice a year in terms, semi-annual shareholder’s meetings.

Our tribal councilmen wear two hats. They are councilmen from the government side, but they are our shareholder’s representatives and they have to learn how to operate in two different environments. As shareholder’s representatives they are not councilmen, they are not governmental representatives, they represent the shareholders. And they fall within corporate law duties of shareholders and they have to fill their duties to shareholders. And what is their primary duty? Their primary duty is the appointment of the board of directors. I report to a five-member board of directors and that board of directors is delegated authority to run the corporation. And so the major power of the tribe is to make sure they have good, competent people on the board of directors, and experienced people on the board of directors.

We also have a very sophisticated agreement with the tribe on how cash moves from the corporation to the tribe. I’ve worked and I’ve consulted to a number of tribes and it amazes me when I go in to sit down with them and I ask, ‘How does cash transfer?’ And they say, ‘Well, the tribe comes in and gets it every month.’ So then I say to them, ‘Well, how do you take care of capital maintenance, capital development reserves?’ And you can begin to see real quickly in the enterprise why they haven’t replaced, in the gaming property, slot machines; why they haven’t replaced carpet; why they haven’t done, you know from a maintenance standpoint; they haven’t developed a new venture. It’s because the tribe comes in and takes it all out. And so the enterprises really don’t retain the cash because it’s sucked out to the government on a monthly basis.

In our situation, we’ve negotiated a relationship with the tribe where money transfers, but it transfers at year-end after all the audits are done. And so we do transfer like pre-payments monthly, but it’s all reconciled at year-end. And it’s based on a formula so that, like anything else, as the audit kicks in and it’s produced then formulas run. So there’s no dispute. And if they want to come in and look at the books and understand why they got this in their check, it’s all auditable, it’s all transparent. So even those relationships are formalized so that we don’t get into disputes. Many times we get accused of holding all the money in the enterprise, but in reality, we can answer that claim any time; just come in and audit us and we’ll show you exactly where things are.

And so, as it relates to that, we probably at this point within our enterprise, the two things that usually are stress points are the financial end of it and human resources end of it. So from the financial end of it, we’ve been able to take 50 percent of the equation in terms of disputes away. We still fight over human resource issues on a day-to-day basis. But at the same time, we set up a system where I’m the final say on human resource issues. Nothing goes to my board of directors, nothing goes to the tribal council. And so as we deal with day-to-day operations, we’re able to handle those things and I’m able to handle issues that some tribes…and I’ve had people tell me how...tribal councils have come in and you’ve disciplined a brother or nephew or niece and they’ve come in and damaged the organization. We’ve had to deal with those kind of things up front and it’s very, it’s worked effectively today.

We also have had to take investment and tried to help the government infrastructure develop. One of the things that happened at Laguna with the quick growth of the enterprises is what we call the brain drain syndrome. The capacity that used to sit on the tribe transferred to the enterprises for a number of reasons. One was pay; we could pay more on the business side than what they were getting as a tribal employee. So what ended up happening is that we ended up wakening capacity of human resources at the tribe. So we’ve been going back in and helping them develop their capacities: how to read a financial statement; how to read a business financial statement versus a GASB financial statement; and what it is you look for in terms of managing the enterprise. Most of us know, especially those of us who run gaming enterprise, your three big numbers are revenue, marketing expenses, and labor. That’s probably 60-70 percent of the equation. So you can make comment about ‘how come so and so’ or ‘how come somebody got a company car?’ But that’s so minute compared to those big numbers.

So as you begin to educate tribal government, then you begin to help in building this bridge between government and enterprises. One of the things we went into was help develop, for a tribe, a budgeting ordinance where we set up the infrastructure where they come and ask us for forecasts, five-year forecasts for revenue. How many tribes have five-year forecasts in terms of their operational standards? Businesses have to do it all the time. So we took that into that environment and said, ‘You guys need to do a five-year forecast. This is how you get the information from us so that you can begin to start planning your growth; because the money’s going to be coming over and the growth and the revenue of the tribe are substantial, are going to be substantial for the next five years.’ Unless they know that, how can they begin to plan? How can they begin to put their governmental infrastructure in place to be able to do the things that they need to do? What normally happens is they do it on a year-by-year basis.

So we’re involved in developing that capacity on the tribal side by teaching them some of these disciplines and hopefully over the years -- we’re not there yet -- we use Joan’s program a lot to come in and do the same kind of training that’s going on here with tribal leadership. But still yet it’s on a hit-and-miss basis. We hope to, and it’s very difficult, we got to do it with a lot of humility, because we don’t want to be; I mean, we’ve been accused of being the Pueblo of LDC and that’s not what we’re about. But we definitely need to do what we can as a child in this household to be better children and help dad and mom develop their infrastructure.

So we work with the administration, you know, a lot of us, you know, depend on tribal water, so we have to help with the water department. We have to help with all those areas where we draw resources out of the tribe so we can deal with them within a business context. We also have to help in the legal arena; because a lot of the areas, for example, in human resources individuals do have a tribal resolution if they do not agree with my decision, and that decision is in the structure is to take me to tribal court not to tribal council. So if they have a problem with wrongful termination and they believed that as the chief executive officer of the tribe, I mean, the enterprise, that I made a wrong decision then, in Laguna, they have the ability to take me to tribal court. So then we go into an environment where we can deal with things on a very consistent basis. In a tribal council environment, for example, there’s this thing called 'freedom of information,' and unless I get release from that individual to release their personnel file, I’m going to walk into that tribal council with my hands behind my back and they’re going to slap me all over the place and I cannot tell them the true story unless I have that sheet of paper that says I can. And employees who take you to that venue, I have not yet found one that’s willing to sign that piece of paper. So you will always lose in that environment because they have the bullets and the gun. You have the bullets, but you don't have the gun. And so we were able to set up legal environments where now it doesn’t go to tribal council -- council has the ability to raise policy issues/policy questions with us -- but in terms of individual cases, the legal infrastructure of the tribe takes care of those issues for us.

Again, emphasize the appointment of board members. It’s very important that you get the best competency on your board of directors if you want them to be managing a $250 million business; and so board development is also very important and the continued development of board of directors, especially for tribal members who want to get active in this area is very important. So we do the same kind of programs in trying to develop our board of directors. The last thing is, one of the other things that government has to do effectively is properly capitalize the business. A lot of tribes, especially in the gaming industry, don’t capitalize their business adequately. At the Pueblo Laguna, from a $250 million business, the initial investment into us was $250,000. That’s all we got from the tribe. So we had to go out and get the capitalization needs from outside sources; where it has an effect on the tribe, is now we have to pay interest, expense, cost of money that could be going to the tribe. So those are the things you have to deal with in this environment and this is kind of the issues we’re working with. Capitalizing the business effectively, especially in your low-margin businesses, it’s very important; because a lot of these businesses can’t afford the cost of money that we sometimes have to pay, especially in today’s market. Now as Laguna Development Corporation, it’s interesting that if you read the paper right now, the down economy and people always thought gaming was recession proof. Across the country, the gaming industry is beginning to experience their first effect of a down economy and its impact on gaming. Gaming is down 10-20 percent across the country. And why is it that I’m here telling you to look at these things? It’s because at Laguna Development Corporation, Albuquerque in New Mexico is tagged as one of the most competitive Indian gaming markets in the country because we have five significant properties around a little over half a million people population base; very competitive. And in a down economy, you definitely have to take that planning into consideration. Our infrastructure has helped us. It’s helped us retain executive competency. In the gaming industry, turnover is almost annual. General managers are released almost annually. In New Mexico, 1.5 years is the average life of a general manager. My executive team has been with me since they came on board because they understand stability. One of their first questions to me, because a lot of these individuals have come out of Indian gaming, have said not, ‘How’s the business running?’ but ‘How does this thing work between the tribe and the business?’ And so I have not had anyone refuse or pull their application as a result of understanding this structure, and it helps me go after better people. It opens the door for me to go recruit better people [because] they know that their head’s not going to be taken off by tribal government. My head may be taken off, but their heads are going to be protected because of the infrastructure, and it’s helped me tremendously.

The last thing is a discipline issue, is, the other thing is you can have all the rules in place, but if you don’t adhere to the rules they’re not worth the paper they’re written on. So discipline, in terms of teaching people their roles, and ensuring from business side that we operate to our boundaries, on the other side, the governmental side they’re operating in their boundaries, has been very successful for us in that arena.

(Next slide.)

What’s the business’s responsibility? The business’s responsibility is to hire the best executive team it can find. I always remember my 201-business course and I was told, ‘Your key to success is to hire the best you can afford.’ And I’ve taken that principle and I’ve applied very consistently within our operation. So I go hire the best I can afford. Some I can’t even, I can’t afford now but I cannot not afford them. So I go after the best. So I have a senior team that is very -- and I guess I would be bold enough to say -- I’ll put them up against any senior team in the country in terms of their depth, their experience, their knowledge and the industries that we run. We provide and evolve our business systems constantly, our operating systems, our financial systems, our human resource systems. We under our, probably our fifth revision of our HR [human resources] manual because the dynamics of what happens within this industry, you can’t just take a book and adopt the rules and just let it sit. You’ve got to evolve them and you got to keep current.

And so we’re constantly looking at those fundamental processes that we have in place and updating them constantly. We provide adequate reporting to the board and to tribal council. That’s one of the big things that has to happen is that the board needs to fully understand full disclosure, what’s going on. The tribal council needs to understand in full disclosure what’s going on. And so in that regard, the board, you know, we have very confident board members so it’s not difficult for them to come back and say, ‘Okay, what happened here? What happened there? How come you…?’ You know, on the tribal council side we’re still evolving there. How do you read a financial statement? You know. How do you read…? How does an income statement differ from a balance sheet? And how does a balance sheet different from a statement of cash flow? You know, most tribes when tribal leaders look at a financial statement, they stop at the income statement, you know. That’s probably the least effective document in the statement. It’s your balance sheet and statement of cash flow that really tells you what’s going on, you know. And so teaching tribal leadership how to evaluate that balance sheet and really see where their net worth is now. You know, we in this down economy, this 20 percent decline in Las Vegas, 18 percent decline in revenue in Las Vegas; in 2008, we grew our revenue by 26 percent. We’re only two companies in the JP Morgan --which just bought out Lehman Brothers -- we’re one of two companies in the JP Morgan portfolio that had a growth in revenue in this down economy in the gaming industry. And a 26 percent growth in revenue while others, the big boys, MGM -- those big boys are losing 18 percent. So to me, it’s fundamentals, fundamentals, fundamentals.

(Inaudible question from the audience).

Indian gaming. You know, this phenomenon is going on in Indian gaming as well, but in the JP Morgan portfolio, JP Morgan is big investor and they’re where we get our money to do our projects. They basically have a portfolio of all the people they loan money to in their portfolio, they just bought Lehman Brothers, that’s this transaction you read about in the papers, so they’re one of the biggest companies in the, finance companies in the United States. We’re one of two of their gaming companies in their portfolio that had growth in their portfolio, in their revenues. So, and again the other company didn’t have the substantial growth we had at 26 percent. Even in this down economy, where everybody else is losing 10-18 percent of their revenue, and we’re doing it in Albuquerque which only has a half-million population base. So, as I can say, it’s focusing on basics.

(Inaudible question from the audience).

They’re the things I’m talking about here: put an infrastructure in place, put in the relationships, tying them together, teaching people their roles, and education is very critical component to this thing. One of the other thing is we focus on growing and developing the business, we don’t focus on politics. We have tribal elections this year. We have no strategic agenda to be involved in tribal elections. They happen on the election side. We’re here to grow the business. And we don’t make decisions on day-to-day objectives, investment objectives as to who’s going to be the governor and what kind of council we’re going to have next year. We focus on the business and we stay focused on the business and run the business, because at the end of the day, you’re not going to be evaluated based on whether or not you did the right political thing, you’re going to get nailed if you don’t get the EBIDA, you don’t get the revenue over to the tribe, because that’s really what they’re all about, what they need.

(Next: Lessons Learned).

This is my, I think, final slide and it’s what have I learned through all this? I’ve got pretty close to 30-some years in doing this. I’m an old man. Maintaining separation of government and business is a very delicate balance. Like I said, if I was to try to do this at Laguna today, I probably would not be able to succeed, because the tribe was not as desperate today as they were twenty years ago.

I’ve been asked to come into some tribes and help move this model into their operation. I had a situation recently where the tribe came and adopted our structure, almost identical. Tribal leadership changed. The tribal leadership came in and had a socialistic agenda and they wanted to build community projects that had no ROI [Return on Investment]. And they said, ‘I don’t care, we want the money.’ 'Well, I have a project over here that’s going to give you 15 percent return on investment.' ‘I don’t care, we want to build this community program.’ And they just said, ‘I’m sorry. What you have to give us is we don’t need it this time. I need this more importantly.’ So we just said, ‘Okay, that’s fine. You don’t need us then. We can do something else. We don’t need to do this.’ One of the criteria my board of directors have on me, before I can do any projects, I have to show my 15% ROI. And that goes all the way down to entertainment. We have an entertainment venue, and if I’m going to bring in Carlos Mencia, I have to show the board that I can get a 15 percent return on that investment. So that’s what I mean in terms of decision-making. It’s not that…there’s some people that say, ‘How come you don’t bring in country [music]?’ It’s because I can’t get an ROI on country. I have lots of people that like country, but I cannot financially make it work; because it’s not about the entertainer, it’s about its impact on the gaming floor and how much more money I can make that night if I do that. So those are the kind of things we have to work on.

But maintain this separation from tribal government. Probably about 80 percent of my job is in two areas: one is human resources dealing with people; the other one is managing tribal government, constantly being available to tribal government, constantly working with tribal government to try to help them understand so that I can protect my management team. My management teams needs to be able to have the flexibility to do their job and they cannot do it with tribal interference. So the buck stops here both ways. And it’s building that trust through example that your management team develops that trust in you, that you’re able to do that. Doing proper due diligence on the management groups that you bring in especially when it’s staff.

One of the things I see in the gaming industry is that industry grew so fast that the development of executive capacity in the industry did not develop as quick as the industry grew. So a lot of Indian gaming facilities were hiring executives that had no experience. They were an assistant table game manager and they gave them the role of GM [general manager]. And you see that a lot. It’s amazing how much you see that. The guy puts on a suit, looks nice, talks well and they’re sold. But they don’t have the experience because nobody did the due diligence on this person to found out whether they really had the capacity. And that’s why you see this turnover in management because after a year, the person shows he doesn’t know what he’s doing, so then the tribe has to fire him because he just lost money for them or did something that he wasn’t supposed to do. So due diligence on the executive team is very critical.

Setting up the infrastructure’s very critical. I can’t stop reinforcing that area. Government has to be there. The business entity has to be there. The infrastructure for the two -- it’s very important to develop those things. Business needs to hire the best capacity that it can afford. I hired, we opened up 150-room hotel just recently. I hired an individual that ran a thousand-room property, because I wanted his experience that was beyond what I was doing because not only did I want to open that facility with zero problems, but I wanted somebody there that could take me to a thousand-room property. So I hired for five years from now, not just for today. My chief of gaming operations; right now we have 2,100 machines; he ran a facility that had over 5000 machines. So again, it’s to take me to where he’s been. I don’t want to go that path for the first time myself. I want people that have been there, that have been down that trail that know what the pitfalls are. And so every position I have, from food and beverage to retail to the gaming operations and all my administrative staff are people that have been there before. And I’ve made sure from a due diligence standpoint, I verify they’ve been there before, because I definitely don’t want to go where no man has gone before. I want to go with someone that’s gone there before.

The next thing is tribes need to adequately capitalize their business and the last thing is tribes need to look at diversification of economy. Even within our business, we’re on diversification strategies. What happens if gaming goes away, heaven forbid? What happens if it goes away? We know that, because we thought uranium was going to last forever. So again, the strategies are: what are we going to do? What are we going to do to diversify? And we’re looking at those strategies now, right now within our portfolio and that’s within our five-year planning cycle. And so these are the things that I can offer you today. I hope that I, I hope I fit the bill in terms of what you wanted me to do today. But again, these are real experiences and things that I experienced at Laguna. And again, ours is just one story and there’s plenty more stories, successes out there that can help you in your decision-making."