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Will the Long-Term Stock Exchange Make a Difference?

corpgov.law.harvard.edu

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Re: Will the Long-Term Stock Exchange Make a Difference?

#41

Post by lotsofpulp »

roguecoder wrote: post #26
dcolkitt wrote: post #9

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. Thi…

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?

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.

Re: Will the Long-Term Stock Exchange Make a Difference?

#42

Post by dumbfoundded »

loganfrederick wrote: post #14
dcolkitt wrote: post #9

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. Thi…

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 prio…

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.

Re: Will the Long-Term Stock Exchange Make a Difference?

#43

Post by Traster »

oilman wrote: post #33

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,…

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.

Re: Will the Long-Term Stock Exchange Make a Difference?

#44

Post by roguecoder »

dcolkitt wrote: post #34
roguecoder wrote: post #26

Earlier quoted context omitted.

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 mon…

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)

Re: Will the Long-Term Stock Exchange Make a Difference?

#45

Post by roguecoder »

Traster wrote: post #43
oilman wrote: post #33

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,…

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…

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?

Re: Will the Long-Term Stock Exchange Make a Difference?

#46

Post by beambot »

polishTar wrote: post #40
owens99 wrote: post #30

Earlier quoted context omitted.

> 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 f…

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 e…

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.

Re: Will the Long-Term Stock Exchange Make a Difference?

#47

Post by jackcosgrove »

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.

Re: Will the Long-Term Stock Exchange Make a Difference?

#48

Post by momokoko »

dcolkitt wrote: post #9

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. Thi…

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.

Re: Will the Long-Term Stock Exchange Make a Difference?

#49

Post by jrjdjdhhedh »

momokoko wrote: post #48
dcolkitt wrote: post #9

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. Thi…

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.

You dont sound very credible. In fact you sound like you're spouting regurgitated bullshit without thought.

Re: Will the Long-Term Stock Exchange Make a Difference?

#50

Post by RhodesianHunter »

roguecoder wrote: post #27
jshaqaw wrote: post #18

Earlier quoted context omitted.

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.

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.
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