Capitalism, mainly western capitalism, catches a lot of flack for unethical behavior and incentives (flack warranted many times). These unethical circumstances almost always seem to be greed-driven.
In Western cultures, decisions tend to be made with short-term profits and shareholders in mind. In Eastern cultures, decisions tend to be made with the stakeholders in mind – not the shareholders.
In September of 2020, the Long-Term Stock Exchange (LTSE) became the 14th public stock exchange operating in the US. Founded by Eric Ries, author of the Silicon Valley favorite The Lean Startup, “its goal is to reshape the incentives for the next generation of public companies so that they can focus on the long term and change our approach to capitalism.” Ries compares the misaligned incentive structure of today’s markets to a wedding;
“The IPO is like a wedding. The IPO process is, what kind of wedding planner do you hire? What kind of wedding do you want to have? But being a public company is you’re now married to the public markets for the rest of your life. People have mostly focused on the IPO process — it’s like making the wedding more efficient,” he said. “That’s not the problem. The problem is we have to live like this forever.’
Ries’s thesis is that today’s companies are too focused on the short term, ie. beating Wall Street’s quarterly projections and increasing margins instead of investing in the future. This is not a very attractive value proposition for almost every party involved - ownership, employees, and investors. As a result, we have seen a lot more companies stay private longer or be taken private altogether. However, this is far from ideal too because some of the fastest growing and largest returns have come from private companies, which only wealthy accredited investors have access to. Long story short, we have a bit of a conundrum here, but LTSE is here to help.
LTSE is “tilting the playing field towards companies taking a long-term view and connecting them to like-minded investors.” Michelle Greene, the President of LTSE believes this can be done through LTSE’s unique principles and stakeholder mindset
“Our listing standards are designed to create a new public market experience that aligns modern companies and investors focused on creating value over generations.”
Listing Principles
A long-term strategy, with metrics that measure progress towards meeting those goals
A stakeholder engagement plan for the community, employees, and the environment, along with a diversity and inclusion plan
A blueprint for engaging with long-term investors
Board oversight responsibility for a long-term strategy
Executive and board-level compensation that is tied to that strategy.
While the LTSE did have ~$117.7 million in trading volume on its first day, it is up against some stiff competition. The NYSE and the NASDAQ have great branding, credibility, and $28 & $10 trillion market values respectively.
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Pitchbook: Long-term thinking