Walking the Walk: Connecting visionary companies and long-term investors
The recent debates surrounding dual class, shareholder activism, and defining good governance have missed a crucial question: why is it so hard for good companies trying to achieve their mission (which is what every company claims to be, in one form or another) to align with good investors trying to support them for long-term growth (which is what most investors claim to be)?
It’s because our current form of capitalism doesn’t work like it’s supposed to. At the most basic level, financial markets were created to help money flow from those who want to invest it in a good idea — to grow it — to those who have a good idea and will execute on that growth. But that’s not what happens in today’s public markets.
Rather than connecting with investors who believe in their vision and support them for long-term success, too many companies find the public markets rife with short-term pressures driving an overemphasis on quarterly results. While going public used to signal a company’s success, today, many founders aim to avoid it as long as possible. So much so that the median age for a company to go public has increased from six years in 1980 to 11 years in 20211. During the same time period, the median market value at IPO (adjusted for inflation) increased from $105 million to $1.33 billion.
But the problems with the current misalignment in the public markets go further. Companies that are overly focused on quarterly results are less likely to invest appropriately in R&D (and therefore less innovative), less likely to invest in the long-term well-being of their workers and communities, and less likely to care about their impact on the environment.
