On Short-Termism
Eric Ries has a new startup that wants to fundamentally alter how people invest in companies and how companies invest in themselves.
The Long Term Stock Exchange (LTSE) is “a new kind of stock exchange…organized to sustain long-term thinking” is intelligent and timely.
To get listed, a company will be required to:
- Select from an approved list of executive compensation plans (focus on long-term profits)
- Have “tenured” shareholder voting rights (voting power with maturity)
- Transparently disclose R&D investment (innovation as the investment thesis)
Read and watch his Bloomberg interview: Silicon Valley’s Audacious Plan to Create a New Stock Exchange.
There are a lot of great resources on the topic of “short-termism,” also known as “quarterly capitalism.” While mentioned in Eric’s book, The Lean Startup, the topic has also been floating around the economic policy world for several years.
Larry Summers had a very smart piece in the FT last year stating that “The real need is for a cadre of trusted, tough-minded investors that will support strong management teams.”
What’s brilliant about Eric’s idea is that he’s building a platform to unite this very investor group. Per Summers:
“The real need is for a cadre of trusted, tough-minded investors in any given company who can credibly commit to support strong management teams and to provide assurances to a broader investment community so that productive investments are made. Accomplishing that, while maintaining market discipline, is the crucial challenge.
For more information, I recommend reading Dominic Barton of McKinsey in HBR — Capitalism for the Long Term:
Post financial crisis “…if we merely paper over the cracks and return to our precrisis views, we will not want to read what the historians of the future will write.”
Larry Fink, CEO of BlackRock, the largest asset manager in the world, has also called for this. Read his letter to S&P 500 CEOs:
“While we’ve heard strong support from corporate leaders for taking such a long-term view, many companies continue to engage in practices that may undermine their ability to invest for the future.”
Lastly, the market has been creating what it deems “Sustainable” indices for some time. These benchmarks are helpful, but the investor community and companies are looking for more.
What’s needed is exactly what Eric is putting together — a platform to match investors and firms that are concentrated on long-term innovation.
I’m excited to see it come together and wish him and his team the best. It’s going to be tough because the idea itself is innovative and you know what most people think of that:
