"With respect to CII’s concerns about tenure voting rights, the SEC noted that the LTSE had not yet proposed those rights and that, as a registered exchange, it would be required to file with the SEC any changes to its rules as a proposed rule change, allowing for public notice and comment."
It sounds like the article is about the (proper noun) Long Term Stock Exchange, and whether or not it will make a difference. I tend to think of problems like that in the context of first asking "what is the Long Term Stock Exchange?" At the moment, at best it's a marketing ploy that advertises emphasis on long-termism, but without any approvals to do anything that they think supports long-termism. And the ideas they want to implement don't look feasible from a legal perspective. So, knowing these things, will it make a difference?
Tenured voting is already legal on NYSE and NASDAQ (https://corpgov.law.harvard.edu/2016/03/07/tenure-voting-and...): it simply requires the company to choose to adopt it and figure out how they would administer it. Right now, tech companies are going with dual-class instead, which only entrenches the founders rather than all long-term investors and is trivial to implement.
This is just not true, at least in the sense that the LTSE is trying to use the term 'tenure voting'.
Right now, every share of a particular security is equally fungible. When Person A sells security X to Person B, the security does not change. Dual class shares are a way to hack around accomplishing something similar to tenure voting, but that hack is that they issue two different types of securities (which, of note, companies have been issuing many types of securities for a long time), but for that security to trade on a listed exchange, it cannot be selectively prejudicial about who owns it. It's the same security with the same rights.
I'm sure Adam Neumann and his cronies on the WeWork board would have loved to be able to list on the LTSE. Would make it much harder for non-colluding market participants to call them out on their self dealing!
It's likely important to distinguish whether this disdain is from being a public company due to regulatory requirements or due to having public shareholders. I agree with your point if it is the later. If it is the former, perhaps regulatory changes are needed versus a new exchange.
The prevailing narrative on this topic is "greedy investors only care about short-term profits". The spin is that visionary CEOs try to build long-term growth and innovation, but they're continuously stymied by Wall Street vultures.
However the empirical evidence tells a very different story. Corporate managers have a demonstrated tendency towards wasteful ego-stroking empire building when not properly monitored. This is a classic principal-agent problem, where incentives drift away from shareholder interests.
Regular quarterly targets are an important part of management discipline. The longer CEOs have before being expected to deliver results, the longer they have to empire-build without being held accountable. Similarly investors bias towards bottom-line profits and cash flow. Those metrics are much harder to fake or spin, compared to intangible stories about brand value, market dominance or skunkworks projects.
When management does demonstrate credibility, Wall Street's usually more than happy to let them focus on long-term initiatives. Just look at Amazon, which is a darling of the investment community, trusted to steer nearly a trillion dollars in shareholder capital. Bezos has continuously poured huge resources into long-term speculative initiatives at the expense of quarterly earnings. And he's loved by shareholders for it, because he has a history of competence and putting company interests above personal ones.
There's certainly a lot to unpack with some of the recent focus on "what is a company for", in all it's varied forms. I think you're correct to focus on some of the empire building, and you're right that there are lots of notable examples of companies that do have latitude to invest in the future (amazon, but this is also true of other big companies like apple, microsoft, google). And I think that what gives away the gambit with this LTSE is that the dual-class structure is protected -- THAT is for empire building and protection of the fiefdom, full-stop.
That said, I like this Harvard piece a lot because the sidebars do point out that there is a pretty strong correlation between excess short-termism that came along with evolution of the shareholder preeminence theory. There's more than enough room here for everyone to be wrong in their own special, unique ways ;-).
I am glad someone brought this point up. It reminds me of the story of Drexel Burnham Lambert and Michael Milken.
Connie Bruck's book on him and his company* provides good context for how and why Milken and his junk bond raiders and the Gordon Gekkos were able to upend corporate America in the 80s. It's because the prior couple decades had fat cat CEOs and middle management that coasted on empires founded by the prior generation. Gekko's speech about Teldar Paper's middle management was not an inaccurate metaphor. There is a trend now that executive tenures are getting shorter, no doubt in part because many are now held to higher standards than many in the 60s and 70s.
There are founders who start companies with bad intentions of using the company as a financial vehicle to funnel money to themselves with as little work as possible, as opposed to founders who start companies to create external value for humanity. The first set of founders and CEOs should be constrained.
All that said, I am still pro-Long Term Stock Exchange because there are issues with the quarterly cadence and high-frequency trading. Don't know if LTSE will be the solution but I support experimentation.
It seems to me that the problem with public markets isn't so much the timing but the presence of a profit motive. Trying to beat the S&P 500 over any period from 1 year to 50 years seems like a daunting task.
Being in public markets forces a company to care about maximizing the return on capital. Different CEOs have different abilities to communicate the timeline investors should actually expect returns. Bezos seems exceptionally talented at extending the expected timelines of profitability when communicating to investors.
The real benefit of private companies appears to be the secrecy and the freedom to do things without any hint of a profit motive. SpaceX stands as a shining example. Their goal is to get to Mars. They won't go public unless they already regularly go to Mars or maybe if they desperately need the money.
Another example is Chick-fil-A, the third-largest fast-food chain in the US. They close their restaurants on Sundays due to religious reasons. This costs the company almost 15% of revenue. Whether or not you agree with the policy, it's hard to imagine it would last long if Chick-fil-A was public.
The real value of staying private is not disclosing financials and getting to do whatever you want. The goal of your private company doesn't have to be maximizing returns if you don't want it to be.
An LTSE seems to only offer value for CEOs who have trouble communicating the strategy and long term vision of the company. Amazon doesn't have any trouble with that communication. Neither does Alphabet. Maybe placing your company in an LTSE will providing useful signaling but I'm not sure about the real impact it'll make outside of the retail investment market.
> Regular quarterly targets are an important part of management discipline.
This boils down to "having goals is important", which is certainly true, but most of us have seen managers try to improve quarterly numbers at the expense of company health. The effect is pronounced enough that people time purchases to be near other companies end of quarter, knowing they'll get a better deal.
I accept that but ANY measured goals will be games as a fairly universal principle of human organization. If you shift accountability to annual the incentives to game increase because you have a whole year before you need to fess up.
This seems like it would be a good reason not to link CEO pay to outcomes at all: game theory says that as long as metrics have no impact on you personally, you don't have any incentive to game them.
Management incentives will always have agent-principal issues. These things can’t be set by autopilot. That’s why corporate governance and a fiduciary voice for shareholders is so important. Of course the same CEOs who want annual reporting also want to neuter the capability of shareholders to enforce accountability.
It also says you don’t have any incentive to improve them legitimately. The whole problem with metrics is that they can’t distinguish between gaming them and real improvement.
I disagree. If you want good long term performance, link CEO pay to long term outcomes such as making a large portion of their compensation stock that vests over 10 years.
> most of us have seen managers try to improve quarterly numbers at the expense of company health
Yep, this does happen. The point though, is to let shareholders rather than managers decide if this is a good choice. If managers are sacrificing the long-term health of the company, shareholders can vote them out or choose to sell their stake.
This is one of the downsides of the rise of passive investing and ETFs based on market cap - less votes are going into the system and holding people accountable.
> This is one of the downsides of the rise of passive investing and ETFs based on market cap - less votes are going into the system and holding people accountable.
uh. the fund managers vote their shares. and they've got way more time and subject matter expertise to do it than the mom & pop investors.
> towards wasteful ego-stroking empire building when not properly monitored
What is "ego-stroking empire building" exactly? I think I can imagine cartoon-characters who do this, but I'm having difficulty thinking of real world examples.
Managing to metrics because they are easy to measure instead of because they actually reflect the outcome you want is a very common mistake, but it seems like a particularly destructive problem to design our economy around that. It's probably why so many companies treat their employees like disposable punching bags: they can't easily measure the payoff from investing in employees so it must not be worth doing, right?
> It's probably why so many companies treat their employees like disposable punching bags
Contrary to what you posit, the empirical evidence shows the opposite. The firms with the best management practices tend to have the highest rates of employee satisfaction [1]. And the surest way for a firm to wind up poorly managed, is for shareholders not to hold management accountable with tangible targets and transparent monitoring.
Do you have a citation for the second part? It seems a huge leap from the first part, for which you have a citation, to "hedge fund activism makes companies treat employees better".
Particularly given that good governance is linked to long-term outlooks (https://hbr.org/2017/05/managing-for-the-long-term)
There are many businesses with margins so low that treating employees better than your competitors mean you go out of business. In my opinion, the root cause of the economic divide in the US (and rest of the developed world) is the very fact that certain types of human labor are worth much less than in decades past, due to automation and cheaper labor in other countries. Computers allow one person to do the work of many, and they’re owned by capital, so the spoils go to the owners of capital. And the owners of capital now have a surplus of labor, and so can pay the labor less and whoever succeeds can offer the lowest prices and survive.
> When management does demonstrate credibility, Wall Street's usually more than happy to let them focus on long-term initiatives. Just look at Amazon, which is a darling of the investment community, trusted to steer nearly a trillion dollars in shareholder capital. Bezos has continuously poured huge resources into long-term speculative initiatives at the expense of quarterly earnings. And he's loved by shareholders for it, because he has a history of competence and putting company interests above personal ones.
I'm sure this perspective is not correct.
You are pointing out something that exists, but your argument about why it exists is misguided.
Founding CEOs, as opposed to Professional CEOs, have two things working for them: 1) Moral Authority 2) An Ability to Recognize New Product Cycles.
1) Moral Authority: It's not that shareholders trust Bezos more than anyone else. It's that he has Moral Authority to take risks because he founded the company. Per Ben Horowitz:
"Often, true innovation requires throwing out many of the foundational assumptions of the company. If the company is significant, doing so may be extremely difficult for the professional CEO. The company’s core belief system is often entangled in those assumptions. Since the founding CEO made the assumptions in the first place, it is much easier for her. An excellent example of existing, invalid assumptions paralyzing a whole set of companies recently played out in the music industry."
2) Ability to Recognize New Product Cycles: This is a skill professional CEOs simply don't have. Again, per Ben Horowitz:
"Founding CEOs naturally take a long view of their companies. The company is their life’s work. Their emotional commitment exceeds their equity stake. Their goal from the start is to build something significant. They instinctively know that big product cycles come from investment and that even the biggest product cycles will eventually fade. Professional CEOs, on the other hand, tend to be driven by relatively shorter-term goals. They are paid in terms of stock options that vest over 4 years and cash bonuses for quarterly and yearly performance."
So in essence, what you are saying, that public companies have the ability to be like Bezos, is simply not true and never will be true. This is why something like the LTSE is a needed experiment.
If you object to the Amazon example because the CEO was also the founder, there are many other examples of extremely long-term focused companies where that isn't true. A really good example is Uber. Honestly, Uber is probably far too long-term focused and it'd be better if Wall St punished them more. It's pretty hard to accuse Wall St of being short-term focused on that one.
That said, I totally agree with you that experimentation is good, and the LTSE is a valuable experiment. Maybe we can learn something from it, even if it's worse than what we already have.
Uber has long term aspirations, but it is barely a tween on the scale of long-term companies. It's still unproven in the long term to serve as a good example.
Uber is a good example in that the $54B+ valuation by Wall Street is in spite of the company's enormous short term losses.
Whether or not Wall St is right about Uber's future prospects, I think it's a pretty clear (non-Amazon) example of them ignoring the short-term and looking at the long-term potential. Frankly, they're probably overestimating the future opportunity of Uber, at least in my opinion.
Wall St is not the only-focused-on-the-short-term boogie man that some people would make you think. It's a very convenient excuse for some (typically poorly performing) CEO's, but it really isn't the case.
I feel this would be spot on if it were not for the massive advancements in financial engineering that have occurred over the last few decades.
Financial engineering almost always outperforms performance over the short term. Until eventually the problems it causes long term eventually catch up to the company and things go downhill.
I don't think it's a transparency issue. It's the conflicting goals that come from different investing timeframes.
I'm buy-and-holding for retirement. I want my shares to peak in 2040. The next guy churns his portfolio every few months and wants prices to peak in November.
Even if you communicate your vision and goals well, any type of long-term vision is saying to the short-term investors "we're going to give you smaller dividends and lower numbers for future promise." So the short-term investor can either hope that the communication is solid and long-term buyers are engaged by that messaging enough to keep the price high, or they can lean on boards to prioritize stuff like dividends and buybacks that provide a more direct boost. We can definitely see the latter approach in play.
I worry that in pursuit of pricing efficiency, we've started underprice the future value of some business structures. The decline of conglomerates fits that sort of fear. You can shard a company like Honeywell/GE/Hyundai/Sony/Hitachi into 200 individually priced and tracked units, but then you lose the difficult-to-quantify magic of "predictable money-making businesses that can provide the financial resources and stability to support long-term bets and moon-shot R&D". I would be unsurprised to see this attitude in more monolithic firms too-- being open with your figures to investors will lead to pressures against anything that's not identifiable as a very low risk play with obvious payout.
Whenever a CEO complains about quarterly accountability I ask them “would you like your direct reports to check in with you once a year?” It is ironic as management move towards real-time 24/7 dashboards to track key metrics, every 3 months is viewed as an inappropriate timeframe to judge progress or lack thereof.
The fact is public market investors are desperate to find high return places to invest capital. There is a shortage not a glut of long term opportunities to invest capital at an adequate rate of return. Companies that can do so are well rewarded by the marketplace. Those that aren’t either aren’t generating adequate returns on invested capital or are unable to communicate their prospects.
Going the other direction would be interesting: if companies produced ongoing metrics, there might be fewer rewards for gaming them and less impact from missing one hour's target. I doubt either the SEC or the accountants are interested in going that direction, but it seems like it is the periodic nature that is the problem, rather than the specific length of time. Perhaps there should be a Continuous Reporting movement.
That’s an interesting concept long term. Some investors are (perfectly legally to be clear) mining big data sources to try and replicate real time monitoring of many companies. Maybe to level the playing field companies will have to provide much more frequent disclosures. For now, as an investor, I find quarterly results a decently optimal balance of factors.
One issue is that its difficult for companies or anybody to plan for the long term. 12 years ago no one had a smart phone. Internet shopping was rare. House prices only went up. China was a trusted trading partner.
How are you supposed to plan for the long term, when you can't even see what is going to change in the next 5 years? It makes sense to keep current customers happy and spend most of time planning for next year or two.
What I don't necessarily get is that from interviews with the founders they are suggesting that they think companies will list on multiple exchanges, including LTSE.
How would that work? If you list on a traditional exchange, then the problem is not solved since they still are going to be reporting quarterly and the speed of price discovery will stay the same as it is today. Wouldn't the price on that exchange inform the price on LTSE? How would that change anything?
Different classes of stock with different voting privileges could at least prevent some abuses by speculators that buy up shares and seek to force through actions that benefit speculators but harm all the other stakeholders (long term investors, customers, employees...).
There are certainly questions about if a long term exchange can make a difference. But it seems to me possible that it could. It does seem to me the voting rights on the shares would have to be different for it to have much of an affect. It seems to me it makes sense to have voting rights largely vest with those interested in the long term success of the company.
That doesn’t really address the main thesis behind LTSE - the idea that public companies are too focused on the short term due to quarterly reporting requirements.
It just seems like if you list on multiple exchanges then you’re still beholden to short term thinking created by quarterly reporting unless you choose to list exclusively on LTSE.
Conceptually, this is interesting. In Europe, some companies like L'Oreal already offer bonus dividends for institutional shareholders who have held shares for longer than one and two years. Voting rights could be another way to incentive long-term holders. However, it is hard to tell where the rubber meets the road.
There has been a strong movement to passive ownership. Would this disincentive index providers from adding new economy stocks by kicking out old economy stocks? Would the ETF providers eventually have too much control? There's definitely fixable solutions to these issues as well as hopefully solving other recent prevalent problems such as no voting rights common stock.
Right now is NYSE and Nasdaq no longer make money on listing fees, but make money on selling datafeeds. Given the LTSE's objectives, it will likely need to monetize through listing fees or an alternative way.
I found it extremely surprising that this company didn't mention the new trend towards "public" companies. For instance Zuckerberg controls the majority of voting shares for Facebook, at Google Page/Brin control the majority, and so on. For those that don't know the 'trick', it's simply different quality shares. They allocate themselves a minority of shares, but ones with 10x the voting power of normal shares - enough to ensure unilateral (or bilateral in the case of Sergey and Larry) control over "public" companies.
This is, for instance, why trying to unify shareholders against Zuckerberg was quite bemusing. Literally every single Facebook shareholder could vote to do away with Zuckerberg. It wouldn't matter - he's not going anywhere unless he wants to. Suffice to say, these sort of "public" companies don't seem to be engaging in any more enlightened longview than those who are genuinely under the heel of profit seeking shareholders.
Perhaps the solution is more reporting instead of less reporting. Some sort of real time (or hourly, daily, whatever) metrics about a company instead of quarterly reports. I feel like a certain frequency makes it harder to game, and much more routine, so people aren't as likely to make decisions that are detrimental to the long term. I think faster reporting and quicker feedback loops are the way the world is going, why not for public markets?
The problem with reporting is it's actually a liability. You're legally responsible for reporting accurately to shareholders so there's a non-trivial amount of work to ensure you get it right. You could do that in real-time but there would be a significant overhead to it. There are also other problems, for example the sales team will always make sure their paperwork is completed in time for the end of quarter to hit their targets, if you're reporting continuously you're going to see a lot more noise in the sales reporting figures that gets averaged out by only reporting the quarter. You aren't gaining information by reporting more often, you're just exposing your investors to a noisier signal.
But wouldn't that be more productive for the business to have people always producing value, rather than rushing things in for a deadline and slacking off immediately afterwards?
Reading through the article, it seemed as if the LTSE is more about norms than rules. Norms seem too much like marketing to me. If the exchange is toothless to enforce its norms, there will be hijinks.
I hope they are aiming for rules rather than norms and just aren't there yet.
53 comments
[ 2.8 ms ] story [ 98.4 ms ] threadThe only incentive could be that more investors (and therefore) more money exist on this exchange. That will take time.
"With respect to CII’s concerns about tenure voting rights, the SEC noted that the LTSE had not yet proposed those rights and that, as a registered exchange, it would be required to file with the SEC any changes to its rules as a proposed rule change, allowing for public notice and comment."
Right now, every share of a particular security is equally fungible. When Person A sells security X to Person B, the security does not change. Dual class shares are a way to hack around accomplishing something similar to tenure voting, but that hack is that they issue two different types of securities (which, of note, companies have been issuing many types of securities for a long time), but for that security to trade on a listed exchange, it cannot be selectively prejudicial about who owns it. It's the same security with the same rights.
[1] https://cooleypubco.com/2019/08/01/ltse-proposes-listing-sta...
>LTSE’s founder said that he discovered in his conversations with entrepreneurs that many were reluctant to go public.
Then don't. You need money? Well then, I guess the people who have it get to make some decisions and hold you accountable.
The idea that you can't build a long-term company on the public markets is hogwash.
However the empirical evidence tells a very different story. Corporate managers have a demonstrated tendency towards wasteful ego-stroking empire building when not properly monitored. This is a classic principal-agent problem, where incentives drift away from shareholder interests.
Regular quarterly targets are an important part of management discipline. The longer CEOs have before being expected to deliver results, the longer they have to empire-build without being held accountable. Similarly investors bias towards bottom-line profits and cash flow. Those metrics are much harder to fake or spin, compared to intangible stories about brand value, market dominance or skunkworks projects.
When management does demonstrate credibility, Wall Street's usually more than happy to let them focus on long-term initiatives. Just look at Amazon, which is a darling of the investment community, trusted to steer nearly a trillion dollars in shareholder capital. Bezos has continuously poured huge resources into long-term speculative initiatives at the expense of quarterly earnings. And he's loved by shareholders for it, because he has a history of competence and putting company interests above personal ones.
[1] https://pdfs.semanticscholar.org/c1cb/684257b67940b9cf0d5aaa...
That said, I like this Harvard piece a lot because the sidebars do point out that there is a pretty strong correlation between excess short-termism that came along with evolution of the shareholder preeminence theory. There's more than enough room here for everyone to be wrong in their own special, unique ways ;-).
Connie Bruck's book on him and his company* provides good context for how and why Milken and his junk bond raiders and the Gordon Gekkos were able to upend corporate America in the 80s. It's because the prior couple decades had fat cat CEOs and middle management that coasted on empires founded by the prior generation. Gekko's speech about Teldar Paper's middle management was not an inaccurate metaphor. There is a trend now that executive tenures are getting shorter, no doubt in part because many are now held to higher standards than many in the 60s and 70s.
There are founders who start companies with bad intentions of using the company as a financial vehicle to funnel money to themselves with as little work as possible, as opposed to founders who start companies to create external value for humanity. The first set of founders and CEOs should be constrained.
All that said, I am still pro-Long Term Stock Exchange because there are issues with the quarterly cadence and high-frequency trading. Don't know if LTSE will be the solution but I support experimentation.
* https://www.amazon.com/Predators-Ball-Burnham-JunkBond-Raide...
https://www.nytimes.com/2018/10/23/business/dealbook/ceo-ten...
Being in public markets forces a company to care about maximizing the return on capital. Different CEOs have different abilities to communicate the timeline investors should actually expect returns. Bezos seems exceptionally talented at extending the expected timelines of profitability when communicating to investors.
The real benefit of private companies appears to be the secrecy and the freedom to do things without any hint of a profit motive. SpaceX stands as a shining example. Their goal is to get to Mars. They won't go public unless they already regularly go to Mars or maybe if they desperately need the money.
Another example is Chick-fil-A, the third-largest fast-food chain in the US. They close their restaurants on Sundays due to religious reasons. This costs the company almost 15% of revenue. Whether or not you agree with the policy, it's hard to imagine it would last long if Chick-fil-A was public.
The real value of staying private is not disclosing financials and getting to do whatever you want. The goal of your private company doesn't have to be maximizing returns if you don't want it to be.
An LTSE seems to only offer value for CEOs who have trouble communicating the strategy and long term vision of the company. Amazon doesn't have any trouble with that communication. Neither does Alphabet. Maybe placing your company in an LTSE will providing useful signaling but I'm not sure about the real impact it'll make outside of the retail investment market.
This boils down to "having goals is important", which is certainly true, but most of us have seen managers try to improve quarterly numbers at the expense of company health. The effect is pronounced enough that people time purchases to be near other companies end of quarter, knowing they'll get a better deal.
Yep, this does happen. The point though, is to let shareholders rather than managers decide if this is a good choice. If managers are sacrificing the long-term health of the company, shareholders can vote them out or choose to sell their stake.
This is one of the downsides of the rise of passive investing and ETFs based on market cap - less votes are going into the system and holding people accountable.
uh. the fund managers vote their shares. and they've got way more time and subject matter expertise to do it than the mom & pop investors.
What is "ego-stroking empire building" exactly? I think I can imagine cartoon-characters who do this, but I'm having difficulty thinking of real world examples.
Contrary to what you posit, the empirical evidence shows the opposite. The firms with the best management practices tend to have the highest rates of employee satisfaction [1]. And the surest way for a firm to wind up poorly managed, is for shareholders not to hold management accountable with tangible targets and transparent monitoring.
[1] https://www.nber.org/papers/w17850.pdf
I'm sure this perspective is not correct.
You are pointing out something that exists, but your argument about why it exists is misguided.
Bezos can do this because he is a Founding CEO. I recommend reading Andreessen Horowitz's primary thesis on why they invest in Founding CEOs (https://a16z.com/2010/04/28/why-we-prefer-founding-ceos/).
Founding CEOs, as opposed to Professional CEOs, have two things working for them: 1) Moral Authority 2) An Ability to Recognize New Product Cycles.
1) Moral Authority: It's not that shareholders trust Bezos more than anyone else. It's that he has Moral Authority to take risks because he founded the company. Per Ben Horowitz:
"Often, true innovation requires throwing out many of the foundational assumptions of the company. If the company is significant, doing so may be extremely difficult for the professional CEO. The company’s core belief system is often entangled in those assumptions. Since the founding CEO made the assumptions in the first place, it is much easier for her. An excellent example of existing, invalid assumptions paralyzing a whole set of companies recently played out in the music industry."
2) Ability to Recognize New Product Cycles: This is a skill professional CEOs simply don't have. Again, per Ben Horowitz:
"Founding CEOs naturally take a long view of their companies. The company is their life’s work. Their emotional commitment exceeds their equity stake. Their goal from the start is to build something significant. They instinctively know that big product cycles come from investment and that even the biggest product cycles will eventually fade. Professional CEOs, on the other hand, tend to be driven by relatively shorter-term goals. They are paid in terms of stock options that vest over 4 years and cash bonuses for quarterly and yearly performance."
So in essence, what you are saying, that public companies have the ability to be like Bezos, is simply not true and never will be true. This is why something like the LTSE is a needed experiment.
That said, I totally agree with you that experimentation is good, and the LTSE is a valuable experiment. Maybe we can learn something from it, even if it's worse than what we already have.
Whether or not Wall St is right about Uber's future prospects, I think it's a pretty clear (non-Amazon) example of them ignoring the short-term and looking at the long-term potential. Frankly, they're probably overestimating the future opportunity of Uber, at least in my opinion.
Wall St is not the only-focused-on-the-short-term boogie man that some people would make you think. It's a very convenient excuse for some (typically poorly performing) CEO's, but it really isn't the case.
Financial engineering almost always outperforms performance over the short term. Until eventually the problems it causes long term eventually catch up to the company and things go downhill.
I'm buy-and-holding for retirement. I want my shares to peak in 2040. The next guy churns his portfolio every few months and wants prices to peak in November.
Even if you communicate your vision and goals well, any type of long-term vision is saying to the short-term investors "we're going to give you smaller dividends and lower numbers for future promise." So the short-term investor can either hope that the communication is solid and long-term buyers are engaged by that messaging enough to keep the price high, or they can lean on boards to prioritize stuff like dividends and buybacks that provide a more direct boost. We can definitely see the latter approach in play.
I worry that in pursuit of pricing efficiency, we've started underprice the future value of some business structures. The decline of conglomerates fits that sort of fear. You can shard a company like Honeywell/GE/Hyundai/Sony/Hitachi into 200 individually priced and tracked units, but then you lose the difficult-to-quantify magic of "predictable money-making businesses that can provide the financial resources and stability to support long-term bets and moon-shot R&D". I would be unsurprised to see this attitude in more monolithic firms too-- being open with your figures to investors will lead to pressures against anything that's not identifiable as a very low risk play with obvious payout.
The fact is public market investors are desperate to find high return places to invest capital. There is a shortage not a glut of long term opportunities to invest capital at an adequate rate of return. Companies that can do so are well rewarded by the marketplace. Those that aren’t either aren’t generating adequate returns on invested capital or are unable to communicate their prospects.
How are you supposed to plan for the long term, when you can't even see what is going to change in the next 5 years? It makes sense to keep current customers happy and spend most of time planning for next year or two.
How would that work? If you list on a traditional exchange, then the problem is not solved since they still are going to be reporting quarterly and the speed of price discovery will stay the same as it is today. Wouldn't the price on that exchange inform the price on LTSE? How would that change anything?
There are certainly questions about if a long term exchange can make a difference. But it seems to me possible that it could. It does seem to me the voting rights on the shares would have to be different for it to have much of an affect. It seems to me it makes sense to have voting rights largely vest with those interested in the long term success of the company.
It just seems like if you list on multiple exchanges then you’re still beholden to short term thinking created by quarterly reporting unless you choose to list exclusively on LTSE.
There has been a strong movement to passive ownership. Would this disincentive index providers from adding new economy stocks by kicking out old economy stocks? Would the ETF providers eventually have too much control? There's definitely fixable solutions to these issues as well as hopefully solving other recent prevalent problems such as no voting rights common stock.
Right now is NYSE and Nasdaq no longer make money on listing fees, but make money on selling datafeeds. Given the LTSE's objectives, it will likely need to monetize through listing fees or an alternative way.
This is, for instance, why trying to unify shareholders against Zuckerberg was quite bemusing. Literally every single Facebook shareholder could vote to do away with Zuckerberg. It wouldn't matter - he's not going anywhere unless he wants to. Suffice to say, these sort of "public" companies don't seem to be engaging in any more enlightened longview than those who are genuinely under the heel of profit seeking shareholders.
I hope they are aiming for rules rather than norms and just aren't there yet.