In a world of volatility, where pension investors are in it for the long haul, could a stock exchange focused on the long term be helpful?
The people behind the recently proposed Long-Term Stock Exchange (LTSE) think so.
In November the LTSE filed an application with the Securities and Exchange Commission, seeking to create a new stock exchange focused on helping long-term-focused companies and long-term-focused investors find each other.
“We’re really trying to create a new venue in the public markets and a new option for companies that feel like the markets perhaps are too short-term-focused right now and bring those companies together with long-term-focused investors who want to match up with companies that have the same priorities,” says Carolyn Dee, financial markets and policy specialist at the LTSE.
This would be accomplished through a series of reforms to listing standards.
“Our long-term-focused listing standards would really be the first innovation on the governance side in over 40 years in the United States,” Dee says, highlighting that the reforms would fall into four buckets.
The first bucket is disclosure. Companies would need to develop long-term growth strategies to show their progress as opposed to quarterly guidance.
Another pillar would be stakeholder reform and requiring the creation of a board committee focused on long-term strategy. There would also be requirements for companies to report on environment, community and diversity.
The third pillar would be executive compensation and an alignment of executive compensation with long-term focus by limiting short-term incentives.
Lastly, this would require the idea of long-term voting where investors could opt into a voluntary system that would allow them to accrue voting power up to ten times over ten years. “This is open to any investor in a company that wants to raise their hand and say, ‘I intend to be a long-term investor,’ and at that point they would begin accruing voting rights up to 10x over 10 years.”
It’s important to highlight that the aforementioned long-term standards are not included in the current version of the LTSE’s application with the SEC, which only states that the company intends to operate a national securities exchange, Dee says, explaining the addition of the long-term standards would come at a later stage.
“We obviously can’t have companies sign up before we’re operational, but we’ve been in tons of conversations with a lot of companies all over the country from every industry, and we’re really excited and I think companies are really excited about this option in the market,” she says.
The LTSE’s founder, Eric Ries, developed this idea by talking to high-growth companies in the private sector that were looking to go public sooner, so that the growth they experience in the first few years can happen in public markets, Dee says.
“We’re hoping to bring companies public sooner, unclog the IPO pipeline, so investors like pension funds and long-term investors can experience that high growth in the public markets and really have a place where they know that the companies listed with LTSE are focused on the long term and aren’t concerned about short-term benefit over long-term growth.”