More Than Words

Calls for a new type of capitalism are coming from its leaders.

As the World Economic Forum meets this week under the banner of “Stakeholders for a Cohesive and Sustainable World,” they join a growing chorus for reform, which includes the Business Roundtable, Larry Fink at Blackrock, EPIC (led by EY and the Coalition for Inclusive Capitalism), Marty Lipton’s New Paradigm, and the Sustainability Accounting Standards Board (SASB).

While the details differ, they share a recognition that we need to make fundamental changes to today’s capitalism, while preserving the innovation, creativity, and access to capital that has enabled our corporations to thrive.

Every call for reform has its critics. A knock against many of these efforts is that they are pledges or platitudes without accountability or enforcement.

Fortunately, two days after the Business Roundtable letter last year, an important announcement from the SEC provided an answer to that critique.

That was the day the SEC approved a new set of principles-based long-term listing standards for the newest national securities exchange, the Long-Term Stock Exchange.

The first of these principles requires every company listed on the LTSE to identify its key stakeholders, discuss the company’s impact on the environment and its community, and discuss its approaches to: diversity and inclusion; investing in its employees; and rewarding its employees and other stakeholders for contributing to the company’s long-term success.

A stakeholder focus is, by definition, long-term. A company’s employees, its community, the environment – these are all constituents that may have very little relevance to the next quarter, but are critical to growth over decades.

The future of these stakeholder groups – and those of their families – depend upon the company’s long-term well-being. They prefer at every juncture that the company make the right long-term decision rather than taking shortcuts to meet quarterly numbers.

In contrast, the public markets have become increasingly short term. Studies abound of the impacts of market short-termism on company innovation, human capital investment, and capital allocation decisions. Stakeholder focus is another way for companies to counteract this short-termism.

The principles-based LTSE approach lets companies define their stakeholders and approach in ways that make sense to their individual situations. Once defined, companies must adopt and publish their policies - thereby committing to follow them. In addition to stakeholders knowing how companies intend to engage with them, this transparency enables investors to distinguish (and reward) those companies that take up the challenge.

Importantly, existing public companies need not switch their listings – they can keep their primary listing on an incumbent exchange – but they can also dual-list with the LTSE.

This is the first time companies can make a firm and enforceable long-term commitment to stakeholders backed by the regulatory authority of the securities laws.

It could shine a light on companies that believe stakeholder capitalism is not just the latest topic of corporate conversation, but a new way of doing business that is here to stay.


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