"Allowing your opponent in a transaction to walk away with his dignity, his humor and his hearing intact, and a pretty good deal in his pocket, is the right way to do business."

I write a lot of these columns about managing capital: why it is important, how to do it and how to turn you capital into market value. The examples I usually write about deal with tangible capital, like factories, machines and inventories of raw and finished goods. Then every once in a while something reminds me that intangible capital can be more important to a business than its physical assets. The most valuable asset of every business by far is its reputation.

Last month my partner, Jerry St. Dennis, and I flew to Chicago for what we thought would be two days of cleanup work to close an acquisition for our private equity fund.

It turned out to be more complicated than we had thought. We worked 14 days and had tense moments when we were not certain the transaction would happen. We negotiated long and hard on dozens of points.

Despite all the haggling, we ended on a friendly note. All of us - buyer, seller, lender - shook hands and clinked champagne glasses. As we were leaving, the seller said he would like to discuss teaming up with us in a joint venture.

Some buyers wouldn’t have liked this. They think that if the seller doesn’t hate them at the end of a deal, they haven’t squeezed out every last drop of money. I disagree. We believe that when someone wants to do repeat business with us it is the highest form of praise. Allowing your opponent in a transaction to walk away with his dignity, his humor and his hearing intact, and with a pretty good deal in his pocket, is the right way to do business.

Jerry and I learned this from our first business partner, V.P. Baker, or "Bake," as he preferred to be called, more than 20 years ago. We met when Bake was already 89 years old, with a career behind him that included being a WWI fighter pilot, a wildcat oilman, a borax prospector, a mule dentist, an orange rancher and a real estate developer. He was a wonderfully principled man. We keep a portrait of him in our conference room to remind us how to behave.

Mr. Baker

Here are a few principles we learned from Bake. They may help you.

1. Do the right thing. Right and wrong are powerful concepts. A handshake with a person who tries to do the right think is more comforting than a ton of legal documents signed by a bad guy.

2. Don’t hide the ball. When you lose a big account or when you discover an error in your financials, don’t hide it from your banker or your employees, tell them. That way they can share the burden of fixing the problem. At first they will be surprised - people are used to hearing lies - but over time they will learn to trust your word. As Bake said, if you have to make money by tricking people, you are not much of a businessman.

3. You don’t need to shout and swear. If others do so, end the meeting. You don’t have to do business with everybody.

4. Leave something on the table for the other guy. The best business deal isn’t the one that maximizes your advantage or your profits. It is the one in which you maximize the chance that the next time you run into the person you will both be glad to see each other.

5. Make everyone your customer. If, as Peter Drucker writes, the purpose of a business is to create a customer - someone who chooses to do business with you over and over - then it is important for your customer to enjoy the experience. Treat your customers in a way that will make them want to come back.

6. Stick to your principles. Hire people who want to live by them, teach them thoroughly and insist on total commitment. There’s no room for diversity of principles.

7. Make your principles tangible. I am no fan of executive retreats and the like, but they can make it easier to teach business principles. We make do with the portrait of Bake in our conference room to remind us that he is still watching. "What would Bake do?" is our standard way of approaching a problem.

8. Principles are not for sale. Be prepared to walk away from a deal, any deal, rather than violate your principles to win it.

The twist, of course, is that businesses organized around principles are often more successful and make more money than those organized around the idea that greed is good. Nice guys often finish first.