Short-termism in business and finance is blamed for everything from excessive CEO compensation to underinvestment in infrastructure to the Great Recession itself.
BlackRock CEO Larry Fink last year took CEOs to task for excessive dividend payouts, an obsession with quarterly-earnings guidance and ignoring long-term risks and opportunities.
“Over the long-term, environmental, social and governance, or ESG, issues — ranging from climate change to diversity to board effectiveness — have real and quantifiable financial impacts,” Fink wrote in his annual letter.
Next year, companies that want to take a long-term view may get some support, by listing on a new “Long-Term Stock Exchange.” Eric Ries, of Lean Startup fame, has been working on the idea for at least seven years, and now says he expects to register the Long-Term Stock Exchange with the SEC by the end of the year.
He promises to “reinvent the public company experience with novel approaches to executive compensation, shareholder voting, disclosure practices, board and stakeholder policies, and community governance.”
In a conversation last year, Ries told ImpactAlpha that “long-term” could be a way to talk about social impact without scaring off investors.
“If you talk about ‘social responsibility,’ people hear mandates and that’s a distraction from ‘performance.’” he said. “So we focus on whatever companies think will yield long-term results.” It so happens, he said, “that certain trends that fall under the heading of social impact, if people took them seriously, they would make more money.”
Companies that make such investments for the long-term, however, are under pressure to cannibalize them and cut costs whenever the company has a bad quarter.
By creating counter-incentives, “We want to liberate those decision-makers who think they have a long-term thesis to act on them.”