A Call to Action for Policy Makers

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28 BUSINESS, INVESTMENT, ACADEMIC, & LABOR LEADERS JOIN ASPEN INSTITUTE IN BOLD CALL TO OVERCOME SHORT-TERMISM

Washington, DC, September 9, 2009—Twenty-eight leaders representing business, investment, government, academia, and labor joined the Aspen Institute Business & Society Program’s Corporate Values Strategy Group (CVSG) to endorse a bold call to end the focus on value-destroying short-termism in our financial markets and create public policies that reward long-term value creation for investors and the public good.

The statement, “Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business Management,” identifies three leverage points for encouraging a renewed focus on long-term value creation and for addressing one part of market short-termism, shareholder short-termism:

1. Market incentives: encourage more patient capital through tax policy

2. Alignment: better align the interests of financial intermediaries and their ultimate investors

3. Transparency: strengthen investor disclosures

The statement highlights the need to focus on the system and not just the corporation, recognizing that a complex dance involving corporate managers, boards, investment advisers, providers of capital, and government drives the results we have now. This distinguished and diverse group is unified in calling for a comprehensive examination of market short-termism in our economy. The signatories hope that policy makers in Congress, the Executive branch, and relevant regulatory agencies will heed this call.

Recognizing that voluntary action alone is not enough to address today’s economic reality, a small group came together to create the foundation for this much-needed public policy conversation. The current drafting committee began with a set of ideas shared in Aspen CVSG meetings among varied market players beginning in July 2008. This effort builds on the CVSG's ongoing focus on sustainable value for investors and society, including the “Aspen Principles for Long-Term Value Creation,” that were released in June 2007 by a coalition of business, labor, institutional investors, and corporate governance experts. The Principles called for voluntary change in practice by business and investors around metrics of success, investor communications, and executive compensation.

“Short-termism must be addressed as a conceptual whole — piecemeal approaches do not work,” said Judith Samuelson, executive director of the Aspen Institute’s Business & Society Program. “Now is the time for bold ideas to drive change in the incentives and behaviors critical to transformation of how value is created and sustained.”

Download the full statement with footnotes.
Download the statement (color brochure version).
Download a list of signatories.
Press coverage.

Related articles:

"Beyond the Crisis: Policies to Foster Long-Termism in Financial Markets" in Corporation 20/20 paper series by Executive Director Judith Samuelson and Senior Fellow Rebecca Darr. June 2009.

"Government and Businesses Must Think Long-Term" in Roll Call by Barbara Hackman Franklin, Charles Rossotti, and David Langstaff. September 10, 2009.

"Short-Term Thinking Linked to Compensation Problems" in The Wall Street Journal's Real Time Economics blog featuring an interview with Ira Millstein and Lynn Stout. September 29, 2009.

"Focus on Short-Term Hurts Companies: The Perils of Subprime Leadership" in The Wall Street Journal by Bill George. October 30, 2009.

"Shareholders: Part of the Solution or Part of the Problem?" in The Atlantic by Ben W. Heineman, Jr. October 28, 2009. Reposted on the Harvard Corporate Governance blog on November 20, 2009.

"Q & A with Martin Lipton and Richard Ferlauto: Short-Termism" in The Conference Board's Governance Center Blog. December 9, 2009. 

"Making Sen$e of 2010: Economic Surprises in Store," a PBS NewsHour interview of several economists and financial experts, including UCLA corporate and securities law professor Lynn Stout. December 15, 2009.

"A New Tax on Banks and Bankers?" is a New York Times article published on January 11, 2010.  Judy Samuelson was invited to add her thoughts about "Taxes and Long-Term Thinking" to the Times' "Room for Debate" running commentary on January 12, 2010.

"Patience and Finance" is the title of a September 2010 paper presented by the Bank of England's Executive Director of Financial Stability, Andrew Haldane, at the Oxford China Business Forum in Beijing. Haldane cites the Aspen Institute short-termism policy statement as a footnote to support a point of his.

"A Long Term Focus for Corporate Britain: A call for evidence" from BIS, the Department for Business Innovation and Skills. October 2010.

"The Short Long" is the title of a May 2011 speech given by the Bank of England's Executive Director of Financial Stability, Andrew Haldane, and Richard Davies, at the 29th Société Universitaire Européene de Recherches Financières Colloquium: New Paradigms in Money and Finance? in Brussels. Haldane cites the Aspen Institute short-termism policy statement throughout his remarks.

"Lessons of the Financial Crisis: The Dangers of Short-Termism" is a piece from Sheila C. Bair, Former Chairman of the Federal Deposit Insurance Corporation (FDIC), featured in the Harvard Law School Forum on Corporate Governance and Financial Regulation. Chairman Bair reflects on the most recent financial crisis and concludes the "overarching lesson of the crisis is the pervasive short-term thinking that helped bring it about." July 4, 2011.

Back to Work: Why We Need Smart Government for a Strong Economy is President's Clinton's new book. In it, he recommends reading our statement, Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business Management, to find recommendations for a way forward. As he writes, the statement is "really worth reading, for the sweep and specificity of its bipartisan proposals to reform the financial sector to create more jobs and long term value..." November 8, 2011.

"Time to tackle UK short-termism" is an opinion piece by John Chapman featured in the Financial Times. Chapman comments on the lack of attention paid to curbing short-termism in the UK. He concludes that "[s]hort-termists will not wind up their cosy club voluntarily. The appointment of a minister charged with engineering the switch to long-termism would provide the sharp shock necessary." May 27, 2012.

"A Capitalist's Dilemma, Whoever Wins on Tuesday" is a New York Times op-ed written by Clayton Christensen (author of The Innovator's Dilemma). He provides three key ideas for encouraging important innovation and unleashing unused capital that is sitting in private equity funds and other coffers. One of these ideas is to change tax rates to favor longer term investments (longer than the 366 days that current US capital gains tax policy considers long-term). November 3, 2012