A New Public Market Seeks to Change Capitalism by Changing the Rules

The Long-Term Stock Exchange (LTSE) was created to address a fundamental issue in today’s marketplace. As long as the public markets optimize for short-term gains, we will continue to see under-investments in workers and innovation, harmful financial engineering, and inadequate regard for the environment.  We can’t provide much-needed reforms to capitalism without urgent and sustained change to the systems that fuel mass inequality.

LTSE is a new public market that incentivizes long-term actions over the quarterly myopia of the current system. It provides capital market infrastructure that prioritizes ongoing innovation over short-term profiteering. It promotes a fundamental change in company behavior and operations through a new set of listings standards—the governance requirements imposed and enforced by stock exchanges.

While stakeholder capitalism has become a rallying cry for many companies, and sustainability funds continue to grow, the stakeholders themselves are increasingly wary of company claims.

Listing with LTSE allows companies to make a binding commitment to long-term behaviors that is designed to give them a competitive edge and improve outcomes for all of their stakeholders. It gives companies a way to differentiate themselves to consumers and employees as a company that means it rather than merely saying it, and it allows executives and investors to build a roadmap for sustained growth that can better weather unknowns (like a global pandemic).

Taking a principles-based approach to governance

Defining these new listings standards has taken years of research and collaboration with experts in governance, financial markets, investors, workers, executives, policymakers, regulators, and other stakeholders to identify the root causes of short-termism and the levers for change. The result is a principles-based approach to governance—backed by extensive evidence—that allows for meaningful accountability, while also enabling companies to embrace creative approaches best for their industries, sectors, and geographies.

There are five core long-term principles that the Exchange believes collectively drive long-term value creation.* These form the basis for LTSE’s differentiated listing standards. While the base of the LTSE listing standards mirror and are compatible with those of NYSE and Nasdaq (recognizing, of course, the minor differences between the two), companies that list with the LTSE also must adopt five policies, consistent with the underlying principles.  These policies work together and require companies to publicly make available their long-term approach to stakeholders, strategy, board, compensation, and investors.

*Note: The descriptions herein do not have any binding regulatory authority and all regulatory decisions related to listing on the Long-Term Stock Exchange are made in the sole discretion of Exchange regulatory personnel

Principle 1: Long-Term Stakeholders

The Long-Term Stakeholder Policy is designed to provide a company’s many stakeholders – workers, customers, investors, etc. –  with clarity about the company’s approach and specifics about its commitment. More specifically, listed companies must identify their key stakeholders; discuss their impact on the environment and their community; outline their approach to investing in their employees; explain their approach to diversity and inclusion; and discuss how they share success with their employees and other stakeholders.

Principle 2: Long-Term Strategy

The Long-Term Strategy Policy asks companies to articulate their own version of long-term success, including relevant metrics.  It isn’t about divulging corporate secrets, but rather companies must have a roadmap for how they will implement and prioritize plans throughout the organization, and how they will measure what’s working.  A long-term approach doesn’t dilute accountability, but rather ties it to metrics that are more meaningful. This allows companies to move away from focus on quarterly EPS and instead define their own narratives for success and accountability over years and decades.

Principle 3: Long-Term Compensation

Existing disclosure requirements around executive compensation are extensive, but also often unnecessarily opaque.  Rather than requiring further disclosure about the particulars of any individual’s compensation, the Long-Term Compensation Policy focuses on aligning compensation with long-term strategy – for both executives and board members.  In LTSE’s engagement with investor, this alignment was the most frequent desired change.

Principle 4: Long-Term Board

Boards of directors report feel that spending too much time looking backward in an auditing capacity, and not enough time looking forward and addressing strategy.  At the same time, executives cite boards as one of the main sources of short-term pressure. The Long-Term Board Policy is designed to ensure that boards are engaged in and have explicit oversight of long-term strategy..  Boards are left with latitude about how to play this role, but the policy needs to make clear how they address it.

Principle 5: Long-Term Investors

The original purposes of exchanges was to bring together investors’ funds with companies they deemed promising.  In the intervening centuries, trading has fundamentally altered that relationship, with many investors now holding shares for mere seconds.  Stock exchange business models that rely heavily upon driving volume reinforce this schism in purpose, relying heavily upon driving volume – which is not always aligned with the goals of the company or its long-term investors.  LTSE’s business model returns focus to companies and long-term investors as core customers.  This philosophy is encapsulated in the Long-Term Investor Policy.  While shareholders are obviously stakeholders as well, the policy requires companies to explain how they engage with their long-term investors.

A New Way to Be Public

LTSE provides a new way to be public for companies planning to go public or those already public. Initially, LTSE is accepting dual-listings.  LTSE’s standards are compatible with those of the incumbent exchanges, so companies can have an incumbent exchange serve as the primary listing venue, conducting their IPO (if they have one) and their daily opening and closing auctions. Liquidity exists across all markets regardless under the National Market System, and a listing venue does not impact that.

What is impacted by a company’s decision to dual-list with LTSE is its commitment to continue operating in a long-term, multi-stakeholder way.   Listing with LTSE means that a company is voluntarily signing on to comply with the long-term standards – but once they do so, that compliance is no longer voluntary.  It is a binding commitment backed by the authority of the securities laws and regulations.

And that should be good news to the company seeking to differentiate itself, as well as to the customers, workers, investors and other stakeholders who want to know they mean it.