Long before I became a business owner I was a worker--farmhand, short-order cook, bellhop, waiter, truck driver, college professor and adviser. Along the way I worked for lots of different bosses and kept a running journal of things that work. Here are a few lessons from my personal business owner's manual.

The first thing for an owner or a director to remember is to keep an eye on the main objective: to increase the intrinsic value of the capital that has been entrusted to his care.

Intrinsic value is easy to describe but hard to measure. It refers to the underlying value today of the stream of future income or cash flow available for investors, which will be produced by the firm's capital.

Estimating the intrinsic value of a business is difficult, since it first requires judgments about the firm's future profitability. It is important that that the owner has the ability to arrive at this judgment independently, without relying too much on the market, outside advisers or the firm's managers.

The first job of the owner or board of directors is governance; making sure that everyone in the organization behaves according to the business principles I wrote about last month. For those who missed my column, or have forgotten, I said that a firm's most important asset is its reputation.

The owner's second job is capital management. Unfortunately, most businesses get low marks here. The owner and managers, must continually search out and prune every dollar of capital invested in low-return activities, i.e., the ones that do not lead to sustainable cash flow for investors, and redeploy it, into activities with exceptionally high returns. If there aren't any value-creating opportunities inside the firm, the owner should send the capital back to investors through dividends, share repurchases or, in the extreme case, selling the firm. To do this work, the owner and directors need to thoroughly understand return on capital and internal rates of return, and how they relate to intrinsic value.

We like to measure the intrinsic value of our portfolio companies at least annually, and take measures to improve or redeploy capital as part of the planning process.

Part of this capital-management function is to give the company's manager a clear charter. We like to run the board of directors as if it were a taxi--licensing commission. The managers bring a plan to the board explaining how they plan to turn each dollar they request into two dollars worth of business. After reviewing their plans we license the managers to use the capital to pursue their plans, usually for three to five years, with annual progress reviews. The license is good only for the purpose argued in the plan, i.e., they can't change their minds along the way and switch from building cars to buying pork bellies.

This charter gives the managers preapproved running room, without interference from the coach every minute. It should be broad enough to let them deal with unforeseen events but narrow enough to keep them in the ballpark. Whenever the managers want to run outside the charter, or deviate from the plan, they must reapply for a new license.

Owners must make sure that compensation plans are aligned with the goal of building intrinsic value. They should be tied to cash flow, not to arbitrary objectives, and to longterm intrinsic value, not this quarter's numbers. There is no substitute for equity value. Unfortunately, owners don't like to let go of power and managers like to have the annual cash bonus as a carrot in front of their employees. But there is no substitute for equity in tying people to a firm's future.

Using equity in place of annual bonuses erases the farce conducted by sandbagging managers and carping directors. Equity comes in many forms. In our business, where we are paid as a share of the long-term gains on capital, it is called carried interest--and everyone in our firm has a piece of the action. Our owners are committed to the firm's success.

By now I hope you will have gotten the point: Ownership is not for coupon clippers or part-time bosses. It is hard work and requires long hours.

We would be much better off if our business schools scrapped the M.B.A. In it's place they could offer the M.B.O, Master of Business Ownership, the real path to building lasting value.