I applaud efforts to improve corporate governance and rationalize public market function. But I believe that this initiative to "...realign investors and companies around long-term value creation (LTVC)..." is a suboptimal approach.
First, who in the game really favors LTVC? As a generalization, I would say passive investors and/or those seeking income. For these parties, guaranteed dividends might be a more effective alignment tool than titration of voting power. The dividends would also provide more incentive for them to invest.
Second, the folks who actually run the companies – CEOs and Boards – often favor the current setup. Short term metrics mean near term personal wealth. In a world where CEO tenure can be measured in quarters, why wouldn't I want to take money off the table ASAP? And lots of it. I would offer that greed (big bonuses) overcomes fear (shareholder votes) for these players. Thus, the more powerful lever is to reduce (alter) the incentives, not dilute the fear.
So perhaps a market that limits both retained earnings and executive compensation would seem a better mechanism for alignment around LTVC.
There's also two other groups here: employees are very likely to value long-term value creation, since it would provide job security, an incentive to invest in employees, and a better chance of bonuses and raises. Second, communities where these companies are located: handing out tax incentives and cheap loans make more sense if the company isn't going to leave the community high and dry in a couple years. The advantages of long-term value creation aren't just fear-oriented: it's possible such a company will be able to hire people and rent office space more cheaply because it has that label.
If that ends up being the case, boards could easily start looking for CEOs willing to make the commitment to qualifying as a long-term company.
First, who in the game really favors LTVC? As a generalization, I would say passive investors and/or those seeking income. For these parties, guaranteed dividends might be a more effective alignment tool than titration of voting power. The dividends would also provide more incentive for them to invest.
Second, the folks who actually run the companies – CEOs and Boards – often favor the current setup. Short term metrics mean near term personal wealth. In a world where CEO tenure can be measured in quarters, why wouldn't I want to take money off the table ASAP? And lots of it. I would offer that greed (big bonuses) overcomes fear (shareholder votes) for these players. Thus, the more powerful lever is to reduce (alter) the incentives, not dilute the fear.
So perhaps a market that limits both retained earnings and executive compensation would seem a better mechanism for alignment around LTVC.