Elaine Kamarck and Bill Galston "outline a new structure to promote long-term growth”
(quoting Elaine Kamarck @EKamarck retweet by Brookings )
(Note: The “traders” of the title refers to stock exchange traders. It could be rephrased as “more goods and services – less financialisation of primary flows”)
"Our thesis is simple: over the years, a set of incentives has evolved that favors short-term gains over long-term growth, returns to corporate executives and stockholders at the expense of investment in workers and in innovation. They are:
• The proliferation of stock buybacks and dividends
• The increase in non-cash compensation for senior managers
• The fixation on quarterly earnings
• The rise of activist investors"
"This represents a shift from producing goods and services to a shift toward the creation of ever more obscure financial instruments."
The pressure of producing quarterly results versus robust long-term performance
"The constant pressure to produce quarterly results forces executives to go along—or risk losing their jobs. That pressure comes from investors who are, in Fink’s words,“renters, not owners, who are going to trade your stock as soon as they can pocket a quick gain(2)”.
"The tyranny of the quarterly report is such that corporate executives freely admit they would
sacrifice the long-term wellbeing of their firms to meet short-term targets. A survey of CEOs and
CFOs found that to avoid missing their own quarterly earnings estimates, 80 percent were willing to forgo R&D spending and 55 percent to delay promising long-term projects (22). The authors conclude, “Managers candidly admit that they would take real economic actions such as delaying maintenance or advertising expenditure and would even give up positive NPV projects to meet earnings benchmarks (2).”
"Some kinds of firms—such as financial institutions and consumer retailers—can do well without
significant investment in R&D. But about half the world’s largest firms do depend on R&D. Among
these firms, there is a direct and strong relationship between the level of R&D and long-term growth rates. When the surge and buybacks comes at the expense of R&D, it reduces growth (40)."
"Shareholders face a tradeoff, she concludes, between “enhancing activities that produce easy-to-observe performance metrics and [those that strengthen] difficult-to-measure intangible assets(49).”
"In another approach to quantifying the hard-to-measure intangibles, Alex Edmans assesses the link between employee satisfaction and firm performance of companies."
"focus on meaningful long-term metrics"
"In a remarkable speech, Haldane traces the historical relation between patience and prosperity and finds evidence of rising impatience in the U.K. and U.S. economies. Volatility has increased; investors are demanding immediate returns; and they are discounting future returns more than in the past."
"We need more patient builders and fewer impatient traders, more Warren Buffetts and fewer Carl Icahns. To get them, we cannot rely on cultural change or the collective conversion of CEOs and hedge fund leaders on the road to Damascus. Instead, we must change the laws and rules that shape corporate and investor behavior."
Tweeted by BloombergNEF 2015-06-26
"In just a few years, investors have gone from zero to billions in the amount of money they’re pumping into renewable-energy companies and environmentally friendly projects."
"Tax-equity funds and specialty financial tools like “green bonds” and yieldcos have become increasingly popular."
"U.S. solar companies had closed a cumulative $2.6 billion in tax-equity funds by late 2014, up from nothing about five years before. “Green bonds,” a type of debt designed to fund environmentally friendly projects, drew $40 billion in investment in 2014, about eight times what it had seen in 2012. Yieldcos have had $4 billion in issuances announced this year, up from about $2.5 billion in each of the last two years, according to Bloomberg NEF."
"Many investors have also become convinced that, beyond fancy financing tools, renewable power can simply compete. The costs for a new wind power in the U.S. and Europe have now fallen below $100 a megawatt-hour, about on par with coal, according to Bloomberg NEF. It projects solar- and wind-power costs will continue to decline around the world, largely falling behind coal and gas in the decades to come."