On 18 July, the U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance held a public roundtable to hear from investors and other market participants about the impact of short-termism on capital markets and whether its reporting system, or other aspects of its regulations, should change to address these concerns.
View the full webcast of the roundtable here
The first panel of the afternoon addressed the root causes and impact of a short-term focus on capital markets, and sought to help the SEC identify potential market practices and regulatory changes that could encourage long-term thinking and investment. FCLTGlobal CEO Sarah K. Williamson participated in the roundtable to provide insight on the practical changes that companies and investors can make to rid the marketplace of short-term investment behaviors. Joining her on the panel were colleagues from academia and the U.S. business community, including several Members:
- Tim Cohen, Fidelity Investments
- Kier Gumbs, Uber Technologies
- John Hayes, Ball Corporation
- David Katz, Wachtell, Lipton, Rosen, and Katz
- Bill McNabb, the Vanguard Group
- Prof. Mark Roe, Harvard Law School
- Brian Tomlinson, Chief Executives for Corporate Purpose
The SEC has recently made a concerted effort to focus on long-term corporate management and the impacts of short-termism in public markets. Earlier this the year it gathered public comments on how to enhance the investor protection attributes of periodic disclosures while, among other things, reducing short-term pressures caused by the current pace of corporate reporting. In light of recent analysis of the issue, FCLTGlobal submitted a comment including recommendations for the future of earnings guidance and financial reporting.
SEC Chairman Jay Clayton and Commissioner Elad Roisman opened the session, highlighting the importance of more widespread access to public markets. The pair also emphasized that prioritizing between short- and long-term needs must not be a trade-off but rather part of a well-balanced investment approach.
Williamson led off the panel by laying out the fundamental benefits of long-term investing, pointing out that data shows that long-term oriented companies outperform their shorter-term peers on a number of economic and financial metrics, and produces more employment, wealth, and economic growth for their domestic economies. Discussing what factors can forecast or optimize long-term value creation, Williamson cited five key areas: a broad alignment of incentives among market participants, active engagement between companies and their shareholders, strong corporate governance, strategy centered on long-term value creation, and sound public policy.
Other highlights from the discussion include:
- Harvard Law School’s Prof. Mark Roe remarked at the high level of corporate buybacks in today’s market, which combined with lower capital expenditures and R&D can create an environment that favors short-term profit over long term value.
- David Katz, partner at Wachtell, Lipton, Rosen, and Katz, noted the recent growth in private markets, a signal that many companies choose to stay out of the public markets because of the short-term implications. This creates a critical issue as retail investors don’t have access to the private marketplace, recalling Chairman Clayton’s initial comment on widespread access.
- John Hayes, CEO of the Ball Corporation, shared his company’s history as an example of the correlation between going public and success over the long term. The accountability required of a public company demanded a rigorous yet beneficial governance model which has sustained Ball Corporation since 1973.
- Tim Cohen referred to Fidelity’s management as an example of aligning long-term incentives – Fidelity incentivizes 3-5 year performance metrics for its portfolio managers according to Cohen, which positions them to focus on long-term growth for clients and the organization itself.
To follow up on the issues discussed during the roundtable, FCLTGlobal has provided the SEC with a supplementary letter providing additional context around some of the research referenced. You can read the letter in its entirety here.
FCLTGlobal thanks the SEC for convening the roundtable to place a spotlight on this important issue and providing a platform for experts to share possible solutions. We value the opportunity to participate and we look forward to continuing this important discourse.