Quarterly results, revenue growth, return on investment, earnings report, etc. are fed to shareholders to demonstrate that their invested money is in safe hands. The economy and system we live in runs on results and is highly profit-oriented. If a company outperforms their last quarter, experts and analysts who previously recommended the stock as a sell, turn bullish. Financial incentives not only drive us as individuals to get out of our warm beds in the morning, but power organizations to work tirelessly and employ people to work ungodly hours. Everyone is watching and monitoring how much money the company made. Did APPL beat its quarterly revenue projection, no, let’s dump the stock, yes, send an order now! In this system we have created and operate in, we as investors encourage companies to cut corners and think short term. It’s unfair to say that we are solely responsible for this, but it’s fair to say that we have a part in it. The organizations are in tremendous pressure from investors and competitors that it must adapt and innovate to survive. This type of behavior is very beneficial to all of us if only we judge an organization by the solutions and obstacles it solves. However, we don’t, rather the majority of the emphasis is given on financial results because, you know, “Cash is king”.
So what can we do as investors to promote companies to think more long term and stop worrying about the next three months? Money. Yes, the financial incentive is the problem and solution to promote longevity. Our money is very valuable to us and is very valuable to the companies we invest in. Just as we have learned to buy from companies that are more “green” and operate ethically, we have to learn how to invest in those companies. We as investors need to stop thinking of stocks as just ticker symbols on a chart and need to start thinking of them as something more tangible. These companies are real, and they have a real responsibility to ensure that they are treating their employees, environment, and stakeholders fairly. Just as you would associate with people that align with your values, we need to invest in companies that respect and operate with principles. A principal-based approach. This is when the new stock-market, the LTSE (Long-Term Stock Exchange) comes into play.
The LTSE just went live on September 9th, 2020, and is a stock market that lists companies based on 5 principles.
- Long-Term Stakeholder policy
- Long-Term Strategy policy
- Long-Term Compensation policy
- Long-Term Board policy
- Long-Term Investor policy
If you couldn’t tell by now, the exchange’s main motive is to promote and incentivize organizations to think in decades rather than quarters. The exchange is a medium used to promote corporations to engage in activities that are sustainable, fair, and ethical. To be completely honest, the market is minuscule compared to the NYSE and NASDAQ. There are high chances that the initiative started by Eric Ries (CEO of LTSE) might not be able to compete with the behemoth markets, however, I believe that the greatest success of LTSE might be the investors it inspires to engage in socially responsible investing.
We as investors can encourage and motivate companies and even banks to become more socially responsible. We have seen this through the rise of impact investing and the creation of SRI departments in financial institutions. There are several SRI funds offered by many large investment banks like Morgan Stanley, JP Morgan, RBC, etc. It’s up to us to utilize them and continue to promote SRI activities.
So the next time we are investing, it’s our responsibility to do the research and understand what company we are promoting. It’s important to understand that our portfolios are more than just ticker symbols, they are a reflection of our values and beliefs in the form of stocks.