Modern companies think long-term. Soon the market will, too.

“Green aurora borealis northern lights against dark blue night sky in Geilo” by Håkon Sataøen

Long-term isn’t a specific timeframe. It’s a state of mind.

It’s the practice of making decisions based on future consequences rather than immediate returns. This is something people do naturally when it comes to things we’re invested in: our families, our health, our communities. Good ideas take time and support to grow, no matter what form they take. Thinking about the future isn’t a radical new idea; it’s a time-honored one.

It shouldn’t be any different for the businesses that shape our lives and our world. Long-term personal investment in the companies we work for, do business with, and put our money into is also the norm. According to Bloomberg, institutional investor ownership accounts for 80% of the S&P 500 index. Goldman Sachs Global Investment Research shows that households, mutual funds, and retirement funds make up over 70% of all domestic equity ownership.

LTSE has developed a set of listing standards based on principles that are designed to support every company’s unique timeline. Each one has the true mission of companies — serving all of their stakeholders — at its center. When companies do what they’re designed to do, rather than what they’re forced to do by short-term market pressures, everyone reaps the benefits.

The LTSE listings standards, which would first be implemented as part of LTSE Listings on IEX (pending SEC approval), are based on a set of guiding principles: (Please refer to the rule filing submitted by IEX for definitive legal language)

1. Long-term Voting

Long-term shareholders should have a greater say in corporate governance than short-term shareholders.

• Company governance documents must provide for Long-Term Voting, under which shareholders may increase the voting power of their shares up to 10x over 10 years by registering their shares in the name of the beneficial owner as record holders on the company’s books.
• Note: This is an opt-in structure — not a separate class of shares.
• Long-Term status is an option available to all shareholders.
• The Company determines the initial number of votes per share for common stock.
• If a shareholder transfers his/her shares out of record form, the shares will revert to the initial number of votes per share.

2. Long-term Disclosure

Companies should be evaluated on progress against their long-term strategy. Long-term investors should have the information they need to make this evaluation.

Long-term disclosure process:

• Required disclosures will be made in the Company’s Annual Report Supplement (as part of the Company’s Annual Report that accompanies or precedes a proxy or information statement relating to an annual meeting of shareholders).
• The Annual Report Supplement must also be available on the Company’s website.
• The Company’s Annual Report (10-k, etc.) must include a statement that these disclosures are available in the Annual Report Supplement and provide the website address.
• For Foreign Private Issuers and others who do not file a proxy or information statement with the SEC, the company must make the required disclosures available on its website in lieu of an Annual Report Supplement.

Long-term disclosure parameters:

• Guidance: Quarterly guidance is significantly restricted. Guidance to be provided no more frequently than annually.
• Additional guidance is allowed only in cases where such disclosure would be required by law or to ensure previous guidance is not misleading.
• Companies still required to comply with quarterly financial reporting requirements.
• Buybacks: Companies must disclose Earnings Per Share (EPS) net of buybacks.
• Long-Term Growth Strategy: Companies must disclose their Long-Term Growth Strategy, which includes a discussion of the company’s Leading Indicators as well as key milestones. Leading Indicators are defined as quantitative metrics (financial or non-financial) that a Company’s management uses to help forecast revenue, profit or other common after-the event measures of long-term success.
• Subsequent reports must discuss changes to the Long-Term Growth Strategy and progress toward achieving milestones.
• Board committee has ability to withhold reporting on certain Leading Indicators for competitive reasons until such information is no longer competitively sensitive, when it must be disclosed.
• Human Capital Investment: Companies must disclose how much of their reported selling, general, and administrative expenses consist of investments in human capital.
• Does not change or replace existing GAAP requirements — Companies will still be required to report investments in human capital as part of SG&A according to GAAP.
• R&D: Companies must define and disclose short-term focused and long-term focused R&D spending.

Long-term Executive Compensation

Executive compensation should be aligned with a company’s long-term performance.

Applicability:

• Provisions apply to “Executive Officers” under SEC Section 16.

Process:

• Companies must adopt a formal written compensation committee charter that must be made available on or through the company website.
• The board’s compensation committee, in consultation with the newly created long-term strategy and product (LTSP) committee, must ensure that the time periods and performance metrics for Executive Officer compensation are consistent with the Long-Term Growth Strategy.

Parameters:

• No incentive-based compensation tied to financial or performance-based metrics measured over a time period of less than 1 year.
• Required minimum 1 year vesting cliff.
• Required minimum total vest of 5 years.
• May allow for accelerated vesting upon certain specified events that don’t circumvent the purposes of the guidelines (e.g., death, disability).
• Business necessity exception allows boards to provide alternative time periods for compensation if they disclose and explain (changes to vesting requirements limited to 5% of total number of shares authorized for grant for any given fiscal year).
• Compensation committee must determine periods and percentages for continued vesting and holding periods after retirement or resignation.
• Exemption for existing written executive compensation agreements entered 1 year prior to company applying for listing.

Long-term Board

Companies’ boards of directors should have explicit oversight of long-term strategy and performance. Directors’ compensation should be aligned with long-term performance.

• Board must have a Long-Term Strategy and Product (LTSP) Committee (or have an eligible existing committee officially fulfill these functions).
• LTSP Committee is required to review and approve annual Long-Term Growth Strategy (including long-term strategy, Leading Indicators of future growth, and key milestones) at least annually.
• At least 40% of director compensation must be paid in stock-based compensation tied to long-term periods.
• Companies must have director stock ownership guidelines including minimum stock ownership guidelines.

Long-term Stakeholders

Long-term focused companies should consider a broader group of stakeholders.

• Companies must publish (on website with reference in proxy or annual report) policies on:
• Impact on the environment and community.
• Approach to diversity throughout the Company.

By aiming to reduce companies’ sensitivity to quarterly pressure and introduce greater accountability for the behaviors that create long-term value, the LTSE is working to forge a new relationship between long-term focused companies and their investors.

Find out more about our listing standards and current progress of the LTSE.