Sunday, 13 September 2009

Tackling short-termism

Via the ace Corporate Governance, I came across this report (PDF) from the Aspen Institute. Press blurb below. 


Washington, DC, September 9, 2009—Twenty-eight leaders representing business, investment, government, academia, and labor joined the Aspen Institute Business & Society Program’s Corporate Values Strategy Group (CVSG) to endorse a bold call to end the focus on value-destroying short-termism in our financial markets and create public policies that reward long-term value creation for investors and the public good.

The statement, “Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business Management,” identifies three leverage points for encouraging a renewed focus on long-term value creation and for addressing one part of market short-termism, shareholder short-termism:

1. Market incentives: encourage more patient capital through tax policy

2. Alignment: better align the interests of financial intermediaries and their ultimate investors

3. Transparency: strengthen investor disclosures

The statement highlights the need to focus on the system and not just the corporation, recognizing that a complex dance involving corporate managers, boards, investment advisers, providers of capital, and government drives the results we have now. This distinguished and diverse group is unified in calling for a comprehensive examination of market short-termism in our economy. The signatories hope that policy makers in Congress, the Executive branch, and relevant regulatory agencies will heed this call.

Recognizing that voluntary action alone is not enough to address today’s economic reality, a small group came together to create the foundation for this much-needed public policy conversation. The current drafting committee began with a set of ideas shared in Aspen CVSG meetings among varied market players beginning in July 2008. This effort builds on the CVSG's ongoing focus on sustainable value for investors and society, including the “Aspen Principles for Long-Term Value Creation,” that were released in June 2007 by a coalition of business, labor, institutional investors, and corporate governance experts. The Principles called for voluntary change in practice by business and investors around metrics of success, investor communications, and executive compensation.

“Short-termism must be addressed as a conceptual whole — piecemeal approaches do not work,” said Judith Samuelson, executive director of the Aspen Institute’s Business & Society Program. “Now is the time for bold ideas to drive change in the incentives and behaviors critical to transformation of how value is created and sustained.”

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