A Stock Exchange that Prioritizes Long-Term Value Creation Over Short-Term Returns

Traditional stock markets often incentivize short-term returns at the expense of long-term value creation, company resiliency, and positive impacts. Seeking to upend this dynamic, a new stock market, the Long-Term Stock Exchange, has emerged. Companies listed on the Long-Term Stock Exchange and investors trading in the market commit to uphold principles of long-term planning and value creation for a broad range of stakeholders.

To learn more about how the stock exchange works and why it was created, I spoke with Michelle Greene, the President Emeritis of the Long-Term Stock Exchange. Below are highlights from our conversation that didn’t make my article on Forbes. 

Christopher Marquis: Short-term metrics in stock exchanges focus a lot on things like quarterly earnings. What are metrics for the long-term value creation that the Long-Term Stock Exchange measures?

Michelle Greene: The narrative for success should not be about quarterly numbers. That is not a number that tells you how companies can do over the long term. So the way that we've set this up from a principle-based standard is that the company creates a policy that talks about their long-term time horizon and includes how they define long term. Obviously, that's going to differ if you're an energy infrastructure company or you’re a retail company. You're going to define long term differently. 

We also look at how does that time horizon impact your strategic planning, how do you align success metrics and find success metrics that match that long term time horizon. As an investor or a worker or any other stakeholders looking at your performance, how do they know that you're executing against your long-term strategy? What are those forward-looking metrics? Because it's not quarterly numbers, but it's different for different types of companies with different types of strategies. So we ask the company to talk about how they do that and also how they implement long-term prioritization.

So part of the reason we took this principles-based approach is because we recognize that those metrics are going to be very different based on company, sector, and individual strategy, but you need to have a way that you are successfully aligning your metrics with long-term success. And let's change that narrative so it's about how you're doing against those long-term metrics rather than how you're doing against some short-term marker that may have nothing to do with your value-creation.

Marquis: As a part of the market ecosystem, how do analysts factor into the Long-Term Stock Exchange system?

Greene: Obviously, there are buy side analysts and sell side analysts, and they may operate a little bit differently. But what we find when we talk to the analysts who really are doing the thoughtful long-term thinking is that they welcome this idea of having additional information that gives them insight into the company's long-term behavior. There are some analysts who are going to companies and getting that already, but it's not necessarily an easy prospect. So the idea that there would be this new set of information available from every company that's listed on the Long-Term Stock Exchange that would give them this additional information is something that a certain group of analysts really will appreciate. For others, it's a daunting prospect. It doesn't fit in today's formula. But we hope that over time this idea that companies should be judged by their long-term performance and long-term metrics is something that will take meaningful hold with those analysts who are taking that longer-term perspective.

Read more of our discussion on Forbes.