Like many facets of the economy, traditional stock exchanges often incentivize short-term returns while neglecting to facilitate long-term resilience within companies — particularly important during periods of crisis. With expectations for relatively quick payoffs, investment money in stocks is directed to companies that may be quite profitable at the moment but that do not have a plan or the necessary tools for long-term value creation.
In addition to diminishing company resiliency, this system’s focus on short-term profits exacerbates environmental and social harm. A company that operates with narrow planning windows will often deprioritize the holistic health of the business and put profits above people and the planet.
“What I identified was the companies that are thinking much longer term, that are really focused on where we will be a decade from now, had a very different orientation than those that were overly focused on, ‘Are we going to make this quarter's numbers?,’” says Michelle Greene, President Emeritus and Board Member of the Long-Term Stock Exchange. “And, intuitively, if you're overly worried about this quarter, you're not thinking enough about your relationship with your community, your impact on the environment, your investment in your long-term workers. It's just not your orientation.”
I spoke with Greene as part of my research of purpose-driven businesses and to learn how the Long-Term Stock Exchange views long-termism in the market as it relates to better business practices. She shared with me the inner workings of the Long-Term Stock Exchange and the motivations behind creating this new public market.
Christopher Marquis: First, it would be great to hear a quick overview of how the Long-Term Stock Exchange actually works. What do you offer? Why is this new market necessary rather than making a shift to long term practices in the existing markets?
Michelle Greene: The Long-Term Stock Exchange is a national securities exchange, just like NYSE or Nasdaq. We're approved by the SEC and regulated by the SEC. The reason that's such an important point is that your listing venue doesn't determine your trading venue. Securities are traded across markets, so there's equal liquidity, regardless of listing venue. We offer dual listing for companies and eventually will offer primary listing as well, but what dual listing means is that companies would be listed on another exchange and they could also be listed on the Long-Term Stock Exchange.
And the reason we created a new public market is because we feel that the short-termist quarterly cadence of the current markets are leading to results that are not what either companies or their long-term investors would actually desire. So we wanted to create a public marketplace that was focused on long-term incentives, helping companies that are focused on the long-term and multiple stakeholders get recognized for behaving those ways by investors and other stakeholders. We saw it as a place that would enable them to better do that than the current public marketplaces. That's really the purpose behind it and the reason that we felt that it was necessary to have a Long-Term Stock Exchange.
When we looked at the problem — and I'll oversimplify a little bit here — but we would talk to companies and management, and they would say, “This quarterly cadence is not necessarily helping us make the right decisions for the long term.” And there's lots of research backing that up. Short term investing can lead to some poor decision making for long-term value creation. So the companies were saying, “We're getting these pressures from the market and the investors,” and the investors would say, “Well, we'd like to support the companies long term.” So we looked at that and said, “Well, that looks like a systems problem.”
So how do we change the system? We felt that in order to bring about systemic change, you need to create a new system with different rules. And what do stock exchanges do? They set rules. So we really looked at this and said, “This is a way that we could create a system that has different rules: having a stock exchange.” And if you look at the stock exchange sector over time, there's been lots of innovation on trading to make it faster, to make it slower. But there really hasn't been innovation on the listing side to say, “How could we change this set of rules to really help companies operate with a different set of incentives in a system that's really focused on long-term value creation and a multi-stakeholder focus?” So the reason we created a stock exchange was to create the rules that enable companies to both continue to operate that way and to have their stakeholders know that they're going to continue to operate that way.
Marquis: What exactly are the rules you have that try to orient companies for the long term?
Greene: Great question. We actually spent years talking with folks at all different parts of companies — executives, workers, all different types of investors, policymakers, folks throughout the financial markets system and those influenced by it to figure out: What's the right approach to this? What we arrived at was a principles based approach. So we are not prescriptive about details. Instead, we have five core principles that we think are essential for long-term companies and/or something that long-term companies have in common. And what companies need to do to list with us is they need to have policies related to each of those principles.
On a very high level, it's about considering a broader group of stakeholders; measuring success in years and decades, rather than short time periods; prioritizing long-term decision making; aligning executive and board compensation with long-term performance; having the Board of Directors directly engaged in long-term strategy; and engaging with long-term shareholders. So that's at a very high level, and the policies themselves have differing levels of prescriptiveness. For example, the most prescriptive is a stakeholder policy because, out of all of these conversations, we felt that long-term companies really need to be focused on a broader group of stakeholders.
That stakeholder policy includes details like that the company's policy has to include a discussion of the company's impact on the environment and their community, a discussion of the company's approach to diversity and inclusion, and a discussion of how the company invests in its employees and how it rewards its employees and other stakeholders for contributing to its success. So that one goes into some more detail; whereas, some of the others are much more broad based principles, and the idea is that the five policies that companies have to create have to comply with and be consistent with these five principles.
Marquis: What are your thoughts on the increasing interest in Environmental, Social, and Governance (ESG) investments and how the Long-Term Stock Exchange can support those types of investments? Does long-termism support better ESG practices?
Greene: I worked at the New York Stock Exchange starting back in 2010. This was in the much earlier days for ESG and corporate responsibility. Part of my role there was building the internal corporate responsibility team at the New York Stock Exchange and working with companies on their own programs. The New York Stock Exchange at the time did this in a really authentic way, but there were many companies in which this was kind of a siloed, separate activity that was not integrated into their core strategy.
Some companies were just “greenwashing” if you will. But there were companies that were very serious, and where these practices were very integrated. But I started looking myself at, “What is it that differentiates these companies and how do you figure out which companies really intend to integrate it into their core strategy?” What I identified was the companies that are thinking much longer term, that are really focused on where we will be a decade from now had a very different orientation than those that were overly focused on, “Are we going to make this quarter's numbers?” And, intuitively, if you're worried about this quarter, you're not thinking about your relationship with your community, your impact on the environment, your investment in your long-term workers. It's just not your orientation.
So the reason I personally came to the Long-Term Stock Exchange was because after I left the NYSE, I had a personal perspective that getting companies to think more long term was a really effective way to ensure that sustainability and a perspective that took into account more stakeholders was integrated in a meaningful way into the company's core strategy. I really want to focus on how we can get more companies to think in that long term way because, personally, I felt that was the way that we were really going to make traction on sustainability in the ESG issues. That’s how deeply I feel that they are in fact integrated. It drove my own career decisions
To kind of generalize that more broadly, long-term focused companies take a broader perspective in terms of the stakeholders that they consider. I think the pandemic has actually been a great example of this. If you talked to companies last June, nobody wanted to be judged by the previous quarter, unless you are Zoom. Most companies did not want to be judged by the previous quarter. But what smart companies were doing was looking at this moment in time and saying, “How can we best serve our customers, our workers, our communities? Because the relationships that we develop now and the way that we behave in this moment will have long-lasting implications for who wants to work here, who wants to buy our product, and who wants us in their communities.”
I think it was a moment that actually crystallized something that was becoming more clear anyway, but it really helped companies to see that if they want to really be here for the long term, they need to be thinking about these groups of stakeholders and the environment, and they need to be vocal in that perspective, especially as we see the upcoming generations that are really weighing this even more so in their decisions about where to work and what to buy. We see worker activism where workers are not just saying, “I need a safe place to work,” they're saying, “I want to work at a place that does something I believe in and doesn't do things that I don't believe in or I find offensive.” We're really seeing a different perspective from workers about what work means and where they want to work, and from customers about where they want to buy from.
So I think the combination of this kind of growing sentiment among upcoming generations about the importance of corporate purpose, combined with this idea that a long-term focused company almost by definition is going to think more broadly, brings the two together and coalesces them. Long-termism is in some ways more broad than some issues of ESG and sustainability because it does encompass your long-term strategic planning and your metrics — because certainly quarterly success is not how we should measure how you're doing against your long-term plan. So it is a bit broader, but I think it absolutely aligns and helps to drive the behavior that we want to see in companies in terms of the way they interact with the world.