This week, the Securities and Exchange Commission hosted a roundtable discussion on the issue of short-termism to discuss several important issues, including whether the short-term focus on success is causing a decline in the number of public companies and how the SEC could reduce burdens so companies can be more long-termed focus. The roundtable featured two panels, one on capital markets and one on quarterly reporting.
- Capital Markets panel featured robust discussion about
the existence of short-termism, including share buybacks. The capital markets panel began with Harvard
Law School professor Mark Roe all but claiming that short-termism does not
exist. Mr. Roe stated that none of the
signs of short-termism existed, including no decline in R&D or increase in stock
- In a defense of buybacks, Mr. Roe noted that the low interest rates make it an economically sensible and efficient action to borrow founds to purchase stock. Mr. Roe also noted that even if a few companies take a short-term focus, so long as most of the market adopts a long-term view, there is no risk to the economy.
- Other panelists, including the institutional investors on the panel agreed. Tim Cohen, Co-Head of Fidelity Investment’s Equity Division noted that issue of short-termism was characterized by a tension between a company stating they have a long-term focus and the ability of investors to hold the company accountable for performance issues. Mr. Cohen noted that in some cases of poor company performance, companies can deflect crticism by stating that the investors are looking at their strategy with too much of a short-term view.
- Former Vanguard Group CEO and Chairman William McNabb III discussed the misalignment of incentives in pay and accountability and noted that say on pay has been an important step in creating that accountability. Mr. McNabb discussed the importance of discussing the use of long-term metrics in pay and communicating those to investors. He also stated that he felt annual say on pay was a better tool and helps enhance accountability despite creating an annual focus.
- Mr. Cohen echoed Mr. McNabb’s comments on the use of long-term compensation metrics as an important step towards making sure corporate focus is on long-term growth.
- Quarterly reporting panel focuses on reducing burdens associated with current reporting requirements. In an interesting divergence after the SEC spent several months discussing the potential of changing quarterly reporting to some alternative schedule, the panel did not talk of changing the reporting timeline at all. Instead, panelists focused on steps the SEC could take to reduce the current burdens of the quarterly reporting system. Panelists discussed different surveys and proposals that could help reduce that burden, including having supplemental/incremental filing approaches.