
The Long-Term Stock Exchange Is Worth a Shot - dsri
https://www.bloomberg.com/view/articles/2017-10-16/the-long-term-stock-exchange-is-worth-a-shot
======
timthelion
This article misses the reason why short term investors are potentially
harmfull. The author writes: "One basic and important implication of this
theory is that, if you hold a share of stock for a minute, you will want the
company to increase its long-term earnings power during that minute. If,
during your minute of ownership, the company announces "we have sold all our
factories and ruined our productive capacity, but we booked a big profit for
this minute," you will be sad. "

This is so simple it is wrong. The truth is, that the short term investor
cares how PUBLIC KNOWLEDGE changes during that minute. For example, if Kobe
steel holds off on making a fraud scandal public during that minute, that's a
good thing, even if keeping the fraud skandal secret will hurt in the long
term. The short term investor wants the IPhone X to be announced NOW, even if
holding off on the announcment could give apple a leg up against the
competitors. The short term investor wants toshiba to announce they've got a
good deal selling off their memory business NOW, even if that makes it harder
for toshiba to improve the price they get even further with a bidding war.

~~~
Yizahi
Exactly this. I'm observing how a midsized company shares fluctuate completely
unrelated to the progress of our development efforts and actual relations and
sales to customers. Product A was frozen and discarded after 2 year intense
dev cycle (a failure), product B is not faring well in the competition, but we
announced product C that may or may not succeed in 1+ years on a major tech
show - shares go up. Next year product D is succeeding immensely, record
contracts are signed with biggest customers in the world, product is ahead of
competition - shares are down, because nobody knows.

tl;dr - PR is everything, often shadowing actual hw or sw "stuff" people make,
and HFT capitalizes on this.

~~~
nradov
PR is nothing. The institutional investors who actually move stock prices
barely even look at it. Humans try to make sense of random events by looking
for causality, but ascribing stock movements to single factors is often like
ascribing weather changes to animal sacrifices.

------
cujic9
Interesting idea, but seems impractical because it causes very weird
incentives:

* Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? If so, can I short on the normal exchange and buy on the long term exchange for some free voting power that increases over time?

* Many (most?) consumer-facing brokerages make a significant portion of their revenue by lending out their customers' securities. Voting rights transfer to the borrower of the security. Would this be the same in a long-term exchange? If yes, then this will break the existing revenue model. Online brokerages will need to make the money elsewhere (likely by charging higher trading fees), and this will push consumers back into existing exchanges with low cost trades.

* How long until there is a secondary market for buying and selling voting rights?

~~~
jessriedel
> Can a company exist in both the "normal" exchange and the "long term"
> exchange at the same time?

The fact that a company is listed on multiple exchanges doesn't mean it has
different sorts of stock for each exchange. This real subject of this article
is tenure _voting_ , which is an aspect of the stock (not the exchange). The
reason exchanges are mentioned is that exchanges have rules about the sorts of
stock they will list. But to have tenure voting, you only need one exchange to
allow out (like the proposed long-term exchange). And most stocks aren't
cross-listed to multiple exchanges anyways.

> How long until there is a secondary market for buying and selling voting
> rights?

Yes, this strikes me as the obvious problem. The equilibrium is for third
party to buy and hold all the tenure-voting stock and then sell stakes in the
dividends of the company plus allowing voting by proxy. Basically, the third
party becomes an exchange, and all stock effectively has maximal tenure.

This problem is so obvious that it must have been addressed by the people
proposing this.

~~~
hobbyjogger
>Yes, this strikes me as the obvious problem. The equilibrium is for third
party to buy and hold all the tenure-voting stock and then sell stakes in the
dividends of the company plus allowing voting by proxy. Basically, the third
party becomes an exchange, and all stock effectively has maximal tenure.

You've essentially just described the current system. Most shares on NASDAQ
and NYSE etc. are technically held by Depository Trust Company via its
nominee, Cede & Co. [1]. Through a complicated set of regulatory and
contractual arrangements, public companies, the beneficial owners of their
stock (i.e. the investor at the end of the chain) and each intermediary (banks
and brokers, etc.) all maintain a sort of legal fiction that the shares are
"owned" by Joe Schmoe, even though all he really has is an attenuated set of
contractual rights that flow through the various intermediaries between him
and "his" shares held by Cede.

Joe Schmoe does not technically or legally own those shares. Cede does.
Believe it or not, you were spot on in predicting that the third party would
allow "voting by proxy." That's exactly how Joe Schmoe (i.e. all of us) must
vote our shares if we want to participate in a stockholder vote. We can't just
show up at the meeting (or fill out the company's proxy card). You send a
"voting instruction form" telling your broker how you'd like to vote, and your
broker then tells Cede & Co. how to vote your shares at the stockholder
meeting.[2]

To address your specific point, tenure voting would surely be based on the
tenure of the beneficial owner (i.e. the person at the end of the chain who
gets to vote) not the nominee holding the shares in "street name" on the
beneficial owner's behalf. This might take some reworking of the arrangements
between the brokers, DTC, clearinghouses, etc. (likely needing to be be built
into the financial systems that log transfers and ownership, if not already
provided for) but would not really pose a significant barrier.

[1] [https://www.bloomberg.com/view/articles/2015-07-14/banks-
for...](https://www.bloomberg.com/view/articles/2015-07-14/banks-forgot-who-
was-supposed-to-own-dell-shares) [2]
[https://www.sec.gov/spotlight/proxymatters/proxy_materials.s...](https://www.sec.gov/spotlight/proxymatters/proxy_materials.shtml#what_is_registered_owner)

~~~
jopsen
> legal fiction that the shares are "owned" by Joe Schmoe, even though all he
> really has is an attenuated set of contractual rights

What is a stock really, if not "a set of contractual rights"?

~~~
hobbyjogger
To oversimplify, property rights are often said to be good against the world,
while contract rights are good against specific others.

A share of stock is itself a set of contractual rights, but the record owner
has a property right in the share (and often a physical certificate). It
doesn't matter if someone takes your share or inadvertently/accidentally sells
it to an innocent buyer. It's still yours and you have a better claim to it
than any buyer or later holder.

But a beneficial owner of a share held in "street name" has only a contractual
right to his shares--essentially a promise from his broker that the broker
will have at least [x] shares for him (note this means he does not have a
claim to any specific or identifiable shares and his broker surely holds many
times more since they'll have many other clients). And on top of that, his
broker has an account with DTC that involves a second layer of contractual
rights to the stock--essentially a promise from DTC to the broker that DTC
will have at least [x] shares for the broker (again not specific or
identifiable shares and DTC certainly has many times more shares since DTC
holds nearly all shares held in "street name")

If your broker or DTC accidentally or inadvertently disposes of too many
shares (and this can happen surprisingly often) you only have recourse against
your broker or DTC. The agreements between [you and your broker] and [your
broker and DTC] do not bind the new owner of the shares, who has no obligation
under those agreements and, as a bona fide buyer + current holder, also has a
better claim to the shares than you do.

If that wasn't specific enough, here's a very detailed summary and analysis of
the current stock ownership structure and mechanics:

[http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article...](http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1163&context=faculty_scholarship)

------
Iv
When I learned about high-frequency trading, I toyed with the idea of opening
up a stock-exchange with different rules:

\- one quote per day \- transactions of the day are processed in a random
order (using a provable random deterministic algorithm) \- shares have to be
kept for at least 3 months (Warren Buffet recommends 6 months) before being
sold.

When Steve Jobs died, which was obviously an event that would have an impact
on Apple's shares, the quotation was suspended for a day, so that people could
take their time to evaluate the significance of the event. This was a
confession that they knew that the high frequency changes is just noise and
that the signal has a lower time resolution of about a day.

The prospects of future profits do not change every nanosecond.

~~~
RhysU
How often does someone decide they want to sell (buy)? Market makers are
reacting to demands for immediate liquidity in a distributed marketplace
comprised of multiple equities exchanges.

~~~
HolyLampshade
To add to this, this model only works if the entire market place operates this
way. If any other venue is providing pricing updates a venue that is halted,
or somehow contributing to a delay in pricing updates, is going to be left
behind.

In the hypothetical "one quote a day" market, the quotes will be insanely wide
to account for the risk that the natural price of product moves through the
quote (with no way to provide pricing/quoting updates).

That said, I like the idea of a slower market, but, much like the debate over
Maker/Taker, it will take an entire industry shift and can't be done on a
single venue.

~~~
Iv
It won't be insanely wide, it will be on par with the intra-day variations.
What they may make a seller lose are on par with what they would lose by
taking a few hours to think about their decisions.

> If any other venue is providing pricing updates a venue that is halted, or
> somehow contributing to a delay in pricing updates, is going to be left
> behind.

My suspicion is that some companies would prefer to only have investors
instead of speculators. I suspect that a SE with such rules would favor long
term investments over short term profits.

------
joshu
My gut sense is that the important time period is length of hold going
forward, not length of past hold.

Maybe the vote strength should instead go with the period of lockup instead?
That is, I agree to hold my shares for ten years, so I get ten votes.

Perhaps it could even be slightly nonlinear with respect to the length of
time? (years * 1+log(years)) or similar?

Edit: LTSE reminds me of LTCM. Not a great connotation?

~~~
jmh530
There is some research in political science on paying for votes in elections.
They came to the conclusion that you should pay $x and receive sqrt(x) votes.
100 dollars -> 10 votes. I would think the same reasoning would work here.
Hold stock $x days, receive sqrt(x) votes (years is tricky because you can
hold less than 1 year and the value increases quite a bit during that period).

~~~
chirau
Would such a political system not spiral into chaos really rapidly?

~~~
jmh530
It's all theoretical. God knows.

------
eries
Hey everybody, Eric Ries here, founder of the LTSE. I am coming late to the
thread as I’ve been focused on launching my new book and am only seeing this
now.

I love a lot of the comments here. I think many of the assumptions both in
this piece and in the comments are reasonable guesses about what we are doing
- but in a lot of cases wrong.

Part of the reason it has taken me more than five years to figure out how to
build this company is that we have to be able to:

1\. Offer companies full liquidity and full protection from short-termism even
if their stock trades on another exchange or they dual-list

2\. Build support among many financial system stakeholders and regulators to
get approval to do this

3\. Build a multi-disciplinary team that is literate in the arcane ways of SF
NY and DC all at once

We aren’t quite ready to take the hood off and reveal how we solved all of
these problems quite yet. This is stil a sensitive regulatory process and I’m
limited in what I can say publicly. But to the extend I can, I’ll try and
answer questions in this thread. Please keep them coming.

Thanks for taking a look at what we are building!

~~~
erikb
Your name sounds familiar. Can you give a short summary of what else you've
been doing?

*edit: Ah, I found something myself. You're the lean startup guy right? [https://en.wikipedia.org/wiki/Lean_startup](https://en.wikipedia.org/wiki/Lean_startup)

~~~
eries
Indeed I am :)

------
wpietri
This article doesn't mention it, but this is a project of Eric Ries, of Lean
Startup fame. An earlier article is here: [https://qz.com/704657/eric-ries-
ltse-long-term-stock-exchang...](https://qz.com/704657/eric-ries-ltse-long-
term-stock-exchange/)

~~~
glenneroo
This article has considerably more information and answers a lot of questions
in the comments. IMHO it should replace the original article.

------
bluetwo
The quote at the very end of the article seems to summarize my feelings:

"Skeptics wonder whether the LTSE is just another way for tech founders and
elite Silicon Valley investors to maintain control at the expense of other
shareholders."

------
cjlars
And when an owner wants to raise liquidity? They'll take a hit due to the
cliff issue (voting rights have value and you destroy voting rights by
selling). So any company with tenured voting rights will have created a system
that forces owners to sell shares at a discount to their current value. And
because they can't sell for more value than they get from holding, they would
tend to prefer value-destroying and excessive short term cash distributions up
and until the point where the damage from those distributions equalizes with
the value destroyed at sale.

I'm sure some economist smarter than me could formalize the issue, but unless
the cliff issue is solved, this sort of ownership scheme will not result in
shareholders maximizing long term value.

A dominant founder-CEO could mitigate or overpower the incentives described
above, but my guess is that any company that successfully gets of the ground
using this scheme will replace their tenured shares with ordinary common
shares at some point.

------
Someone1234
That sounds very interesting conceptually.

Businesses have been moving further and further into short-termism; with the
next quarter being the most important metric. This is partly due to investors
also being short-term, and voting on the board who will bring the most value
in the shortest period.

I'd be interested in taking part in a Long-Term stock exchange, even if it is
an experiment at this point.

~~~
WalterBright
> Businesses have been moving further and further into short-termism; with the
> next quarter being the most important metric.

That's the conventional wisdom, I've heard it my whole life, and I see no
evidence of it. AMZN, MSFT, etc.

I've known CEOs who believed it, and manipulated the books to make the short
term look better at the expense of the long term. Investors weren't fooled and
the stocks would tank.

~~~
TuringNYC
AMZN ist the stand-out example, but AMZN, FB, GOOG are exceptions. Think back
to 2006/2007 when PE and activist investors would take board seats and force
companies to over-lever and do stock buy-backs while stocks were all-time
high. How many companies can survive short-term incented PE or activist
investors?

~~~
WalterBright
A short term investor still has to sell the stock. Why would someone buy it at
a high price if that high price was based on short term thinking that
sacrificed long term results?

The only hope of the short term investor is that the buyer will be
incompetent. How viable is that for people who devote their careers to stock
analysis and trading?

------
ThrustVectoring
How would this work with someone pulling something similar to Altaba?

Suppose you have $1B worth of stock, and 10% of the value is in the vested
voting rights that you'd lose by selling it. Instead of selling part of it on
the open market, you sell shares in a shell corporation that holds that stock.
Surely the discount in ShellCorp's stock price compared to UnderlyingCorp is
less than 10%? And the cost of setting up ShellCorp is going to be far less
than losing 10% of the value of your holding.

~~~
notahacker
Perhaps you'd tie voting rights to a named human beneficial owner, so the
prospective purchaser of your shell corporation wouldn't inherit them[1]

Though it might have the interesting side effect of fund managers who exercise
their voting rights being better compensated and staying in their jobs
longer...

[1]possible to devise some kind of unusual contractual arrangement where the
"beneficial owner" retained formal title to the shares but accepted an
obligation to both hand over stock yields and vote in the interests of the
other party. But this is something you could effectively ban.

~~~
ThrustVectoring
You can't ban separating out economic interest and formal title to the shares
without banning options, forward contracts, and other derivatives on the
stock. Like, these are not unusual contractual arrangements. These are
standardized and sold on the market. Put options transfer the downside risk to
the writer, call options transfer the upside risk to the buyer, futures
contracts essentially do both.

~~~
notahacker
My point was you'd ban titleholders from selling a contract directing them to
exercise their votes as a delegate of the purchaser, not the more general
separation of title and economic interest which is obviously valuable for a
large number of reasons.

(I mean, it's still a bit messy because fund managers have a fidicuary duty to
exercise their voting rights on behalf of their own shareholders, but I don't
have the ability to dictate a new aggressively activist investor policy to
Vanguard)

------
mooneater
How that plays out would be very sensitive to the exact formula for tenure.
Ie. A voting "cliff" where you can only vote after year 1. Vs votes per years
held * shares, in which case an early investor could get entrenched.

~~~
Retric
I would probably go for some middle ground such as if (year > 0) then shares *
Square root (years).

Just because someone has held a stock for 20 years does not necessarily mean
they are currently interested in the long term. But, it probably points in
that direction.

~~~
rocqua
You might want an upper limit, so either logistic growth [1] or something like
1 - exp(-(T + T_0)) feels like it makes more sense.

I especially like logistic growth for having slow growth at the start and end,
only growing quickly in the middle.

[1]
[https://www.khanacademy.org/science/biology/ecology/populati...](https://www.khanacademy.org/science/biology/ecology/population-
growth-and-regulation/a/exponential-logistic-growth)

~~~
SomeStupidPoint
You don't need an upperbound as long as your function is sufficiently slow
growing.

Example:

Log(years) doesn't have a bound, but is unlikely to cause problems over any
reasonable time scale.

------
DINKDINK
This strategy is Small-Game fallacy.

Reducing the complexity of the real world -> If only shares held for a long
term have full rights, you will obfuscate how you pay for those rights. either
the stock will have a depreciated market price to what it 'should' trade at or
the voting rights will be acquired through rent seeking by long-term holders.

------
grondilu
> Anyway here's a story about the Long-Term Stock Exchange, which is a new
> planned stock exchange backed by Silicon Valley venture capitalist types
> that will have "tenure voting," in which shareholders who hold their shares
> for a long time will get more votes.

This has been discussed already on HN, and I believe it's a bad idea.

All that would do would be to create two kinds of shares : the normal ones and
those with high voting power. The market would then want to price them
differently, and if you want to prevent long-term owners to sell their shares
(for instance if they want to enjoy the increased value), then you are doing
some kind of capital control.

It's just a bad idea. In a free country capital can be bought and sold : if
you give voting rights to someone, he should be able to sell them, which would
probably defeat whatever purpose you had when you gave those rights in the
first place.

~~~
danmaz74
If I got this correctly, when you sell your shares with high voting power,
they lose their high voting power.

~~~
grondilu
Then you'd just create an incentive to sell the share in dark markets. You'd
officially still be the owner of the share, but in secret you would have sold
your voting right by agreeing with someone to vote on command in exchange for
money.

As is said in the 1981 movie "rollover", capitalism is like a force of nature
: you can try to fight it, but in the end it always win[1]

And even if somehow you succeed, you would have created capital that can not
be bought nor sold, or can only be bought and sold from and to a particular
category of investors. You would have introduced a bit of communism in the
system (in the sense that in communism, buying or selling capital is
forbidden). I guess some people will be happy about that, but I won't.

1\. [https://youtu.be/m1aQ-XGWors?t=151](https://youtu.be/m1aQ-XGWors?t=151)

~~~
danmaz74
Are those dark markets contracts enforceable?

By the way, this is nothing like communism, not even close. This is a
perfectly market oriented solution, if you don't like the idea, don't buy this
kind of shares, nobody forces you to do so. If the model will prove good for
companies and their investors, it will prosper, otherwise, it won't.

~~~
grondilu
> Are those dark markets contracts enforceable?

Of course they are. When absurd laws try to prohibit market forces, shadow
markets emerge and they tend to have their own enforcement policies. Think
mafia, prohibition in the 20s, corruption and stuff. Things get ugly, but they
get done. The point of having regulated markets is precisely to put some order
and fairness into this.

> This is a perfectly market oriented solution, if you don't like the idea,
> don't buy this kind of shares

It is not, and the problem is that if that idea were to become popular, then
capital would become more and more difficult to buy. So yeah, it's a step
towards communism indeed. In the end, it's all about adding restrictions to
the circulation of capital.

You can't artificially attach a right to something that would depend on the
duration of ownership. In a free country, you can buy and sell stuff, which by
definition means their value can not depend on the duration of ownership.

Let me make that reasoning clearer. Imagine I've owned an object for an
extended duration, and that this extended duration gives it an additional
value V. In a free market, I'm supposed to be able to sell this value V, but
if I do, then the buyer will own this object with this extra value V, despite
the fact that he's just bought the object. So your initial goal of giving
value to duration ownership has been defeated.

~~~
danmaz74
So basically a free market is free as long as it only creates contracts that
you like, otherwise it's communism. Ok.

------
teemwerk
I am by no means stating it as a conclusion, but rather just as a discussion
point, how does this differ from the mutual funds and etfs under a single
umbrella, i.e. something like vanguard? Where the stated mission is sort of
long term stewardship over the short term activist role.

Now, how well that mission is fulfilled is another thing. The reason I note
vanguard specifically is because of the current activist spat between P&G and
Nelson Peltz/Trian Partners. Of the top 3 holders (vanguard, black rock, state
street), only vanguard voted against the activist shakeup.

I guess I'm just having trouble seeing the difference between giving a bunch
of small investors more power, vs a large amount of krill with similar goals
making up a whale the company can't ignore. It seems the tenure setup
complicates a lot without immediately perceptible benefit, at least to me.

~~~
eldavido
It's worth asking why we make the distinction between "activists" and big fund
managers in the first place. Shouldn't all fund managers be doing what's best
for their shareholders?

You should check out John Bogle's "Clash of Cultures" (founder of Vanguard),
he discusses this problem at length.

In general I'm inclined to agree with you though. This thing has a lot of hype
around it because it's backed by Eric Ries, the "Lean Startup" author, but I
don't really see a problem with the NYSE/Nasdaq in their current form. People
overlook the liquidity, depth, and other benefits of such well-run exchanges;
it's not at all clear to me that an average investor would be better off on
this "long-term" exchange, where I'm sure volumes will be a lot lower, and
bid/ask spreads will be wider than on a "bad" exchange with many "short-term"
players, who, as a side-effect of their actions, create tons of liquidity for
small-potatoes investors.

Frankly, I don't understand the point of this at all. There's nothing stopping
a long-term oriented investor from holding shares a long period of time in
today's markets. And there are real risks of corporations being too long-term
focused. The existence of Amazon, at a minimum, should show that companies
with 10-20 year investment horizons are tenable under the current system.

~~~
walshemj
Multiple classes of shares with different voting rights are though

------
aceon48
One of the mainly value of a stock exchange is that it is super cheap and
liquid to sell your security and access your funds. A long term holding is
just PE, VC, or some other type of funding.

~~~
pishpash
And people should get access to participate in that, not just private
millionaires.

------
grandalf
There is a pervasive idea that longer term investments are somehow better
(morally superior, more socially responsible) than short-term. This stems from
the ancient prejudice toward financiers (usually jews) and the corresponding
ancient prejudice against speculation. Let me debunk it:

\- Suppose an 18 year old and a 80 year old each buy a share of company XYZ's
stock. Whatever their goals might otherwise be, the 80 year old might quite
plausibly have a different time horizon expectation for returns than the 18
year old. If both choose to buy the same stock, they must both believe the
stock is a good investment for their respective time horizon goals. Maybe it
will be, maybe it won't be. In both cases, someone else sold each of the
shares they both bought. The person who sold the shares had deemed the stock a
not-so-good investment compared to other options and wished to liquidate.

\- Now, suppose that we add a day trader to the mix, who also buys a share
because she thinks that company XYZ offers a good investment based on her
specific time-horizon goals. The demand she induced on the available stock
helped to support the validity of whatever the current price appears to be. By
being willing to buy, she helped create a market for the 18 year old and 70
year old to sell, should one of them change their mind about the stock.

\- Now imagine we have 1000 day traders, 1000 18-25 year olds, and 1000 70-80
year olds participating in the market for this stock, with some buying and
some selling every day. Due to all the transactions, we have high levels of
liquidity for the stock and low "inventory risk" associated with holding the
stock in inventory as a market maker, and thus lower spreads. Market maker
spreads are a function of risk, which is correlated with supply and demand.
The more supply and demand, the less risk there is to holding inventory.

\- Now suppose we decide we don't like anyone who wishes to invest on a less-
than-10-year time horizon. We determine that they are acting to incentivize
the company to focus only on short-term profits. So we pull some strings and
simply kick out those investors and limit investment only to those promising a
long-term view. Now, there is less demand for shares, making them cheaper and
limiting XYZ company's ability to fundraise. With less capital, XYZ must rein
in its growth projections.

\- What good were those projections anyway if they were based on short-term
investors' dollars being available? Wasn't the capital invested by short-term
investors likely to disappear at the first sign that short-term results might
be floundering? How can a business adequately plan for the long term if it is
distracted by the need to fundraise from such a fickle lot?

\- The answer is simple: If a company's business activity is focused on long-
term goals and long-term thinking, then it will attract like-minded investors.
Like the random walk of day to day stock price, day to day information and
speculation will result in short-term transactions occurring, but those
transactions benefit the firm significantly as they provide an excellent price
discovery mechanism. The day-to-day price will also reflect both short-term
and long-term industry-wide shifts, and this will be true both in a long-term
constrained exchange and an unconstrained exchange. If the firm is doing wind
farms and has a 30-50 year view, and then suddenly a company doing solar comes
up with a 100x efficiency improvement, that is going to impact the long-term
viability of wind tech, as it should.

While I agree that firms embodying short-term thinking is a problem, the
market mechanism offered by the exchange is not the problem, the problem is
that executives and employees are generally given predominantly short-term
incentives to care about. Imagine the following:

\- Instead of ISOs issue employees a basket of different time-deferred
options, so that each employee gets his/her comp incentive spread over time.

\- Instead of giving the CEO shares of stock, give the CEO both present and
future shares, and leverage the future ones to the point where any bias the
CEO might have had toward short-term thinking is washed out by the appeal of
the longer-term incentive. Any hypothetical business results can be used to
preview what the CEO would earn in each scenario. If the owners of the company
want long-term results, let that be the way the CEO will make the most (time
and risk-adjusted) money.

Just as $100 now is worth more than $100 next year to any rational person, the
comp incentives for future-looking payouts would need to be more generous in
order to impact behavior in a comparable way. They would also need to be
invulnerable to termination, since being worried about getting terminated and
losing some or all of one's stock is a big disincentive for long-term
thinking. The employee should be incentivized to act as if the role is a great
fit and he/she will be there for the rest of his/her career, even though we
all know that is highly unlikely if not absurd.

I think the ideal scenario for employees including the CEO would be a daily
payout of cash salary, plus a daily payout of some basket of immediately
vesting, future-weighted non-salary compensation.

In startups, this would look bad to the accountants who had to account for the
future-weighted stuff in terms of some mythical hockey stick graph, but
without it there really is very little incentive to care about the future in
any non-unicorn startup. Big companies manage to create longer-term focus on
retaining employment and benefits, and thus end up with a lot of 9-to-5'ers
but do a terrible job of preventing organizations from doing repeated short-
term-oriented fire drills. Unicorn startups create strong future incentives,
but those immediately disappear once the company stops being a unicorn (or the
handwriting on the wall suggests it might).

It should also be noted that startups are almost by definition not long-term
in nature. The seed investors need a buyer so there needs to be a series A,
and the series A investors need a buyer so there needs to be a series B, etc.
It's a sales process that (when it works as intended) results in an IPO where
each phase of investors get a nice leveraged payout when an IPO occurs, but
the whole ecosystem is meant to create that IPO payout, which is fundamentally
short-term thinking. The sales pitch at each phase boils down to "wow check
out this long term win available to you at a discount because the market
doesn't yet realize this is a long term win".

~~~
notahacker
Isn't the particular problem this is aiming to solve less that the founder
CEOs aren't able to think in 30 year time horizons but more that sometimes
they _are_ [1], but fear that when most market participants have much higher
discount rates, their position is vulnerable to activist takeovers (if the
market's preferred yields are sufficiently short term, they'll get a value
boost for kicking out the execs who's hockey stick growth is forecast for ten
years' time in favour of those promising earlier revenue growth). It's not the
market makers they're worried about, it's the people that actually hold stock
for long enough to vote, hence the desire to weight the voters in favour of
themselves and the investors that bought into their vision, and not the people
buying with the intention of flipping after good quarterly figures.

I mean, they're certainly not going to raise bigger IPOs on a brand new
marginal exchange with no track record and a lack of liquidity, but I'm not
sure that's the real aim here. (You might need a new exchange to introduce
rules like making key executives immune to termination too)

That said, I'm not sure how real a problem it is: AMZN has a very long term
strategy and unusual approach towards margins and its stock is doing just
fine. And cynics might suggest that other tech stocks returning unimpressive
quarterly figures might actually not have thirty year plans...

[1]or want to be considered that way to justify still not turning any profits
as their growth metrics start to plateau

~~~
valuearb
Since the 1980s activist shareholders have been heavily restricted, it’s a big
cause of the explosion in CEO compensation.

We need more activist shareholders, not a plan to kill off the few remaining.

------
oconnor663
> shareholders who hold their shares for a long time will get more votes

What prevents me from selling my vote, without technically selling my share?

------
dade_
Regardless of my strategy, one benefit of stocks is liquidity. If something
comes up, I can cash out pretty much immediately thought I may not like the
return. kes th This proposal sounds like tenure, being in place for a long
time entitles me to something. It makes the market more complicated and for no
proven benefit. No thanks.

------
IvyMike
I want a reddit (or hackernews) with this style voting. The longer you've been
a member, the more your vote counts.

There would probably be unintended consequences galore but it would
interesting to see if it helped preserve culture and avoid the "it was better
in the early days" syndrome.

------
kevinr
I think it's all going to depend on how the tenure mechanism is implemented.
There's got to be some way for new money to "catch up" to old money within
some reasonable time horizon, say 10 years, rather than old money's voting
power growing unbounded.

------
thisisit
This is so contrived. Why not have different classes selling in the same
market? Something like DVR or differential voting rights. Depending on the
market and need prices of DVR might be less or more.

------
maxk42
You want a long-term exchange? Istitute a mandatory holding period and/or
limited trading times.

This is the exact kind of experimental BS that lead to the derivative bubble.

------
skywhopper
This seems like a lot of very highly directed, complex, and confusing
artificial policy-making in order to achieve something that could probably be
approximated far more simply and understandably by placing a small tax on
equity transactions. Long term investors would be barely affected, high
frequency traders would be forced to re-evaluate their approach, and the
government could collect some highly needed revenue.

~~~
eries
If you get the political coalition assembled to make this, please give me a
call

------
yuhong
At this point I think the problem is that the economy is debt based and
depends on stocks going up anyway.

------
kolbe
Forget all the practical hurdles, tell me why this premise is even correct.
Just because I've owned a share for a long time, that implies that I have more
interest in the long term performance of the company going forward? Just
because the word "long" is part of the description of a past action doesn't
mean it's in any way correlated with an expected future action. And it's often
negative. See: basketball games, retirement, and (gasp) stock vesting. You
think a VC who's owned a company for 9.9 years and is reaching the end of its
fund has more incentive to vote in the long term interest of the company than
a pension who just bought?

~~~
andreasklinger
Explicit expectations by the market towards the leadership.

As in: Do not worry about quarterly profits but longterm success

~~~
jshaqaw
Does anyone report to you? If they do, how would you respond if they said “I’d
like to check in with you on my progress/metrics/etc... just once a year.”
Sound like a good idea? It’s a terrible idea for managing people and a
terrible idea for corporate governance. As high performance organizations move
to daily if internal accountability it’s laughable that they complain
accountability every 90 days to them owners of the company is too much.

~~~
andreasklinger
there is a difference between long term planning and short term execution

yes short term execution should be monitored but it should not lead long term
execution plans

~~~
valuearb
Owners should be able to decide at any moment it’s time to throw out
management and start fresh.

~~~
andreasklinger
this does not contradict my statement

------
Timothycquinn
IMO, short term investing including stock options does nothing but move money
from one group to another by creating artificial Flux. The stock market for
the most part is a closed cycle in which a large group of investors, mostly
the loosing ones, think that the stock market creates value and the ones who
make the money from these ignorant "investors" are completely aware of and
dependent on the loosing parties stupidity.

We should open gambling shops for those who want to day trade or deal in Stock
options because that is all that they are doing.

The only stock market that promotes long term growth and profitability of
businesses is one that awards long term investment.

~~~
wyager
The market isn’t a mechanism to let salarymen invest their retirement money in
something. The market is a mechanism to plan and optimize _all_ production and
resource allocation across the entire world, all the time. This has to be
fast.

If you think options (your example, not mine) are somehow inherently nothing
more than gambling, it’s because you don’t understand how options work.
Options are one of the least exotic and most straightforwardly useful
securities.

