How Long-Term Investors Influence Corporate Behavior

Annotated opening paragraphs of an article on the impact of long-term investors in the MITSloan journal:

In his recent letter to CEOs, Larry Fink, CEO and chairman of the mutual fund giant BlackRock Inc., based in New York City, repeated his call for organizations to share their strategies for creating sustainable value. He also added a new admonition to contribute to society or risk losing his company’s support.

This norm-shifting language regarding the corporation’s purpose, which is moving away from the profit-maximization (at any cost) model [ACTUALLY, moving away from externalization of costs and maximizing short-term returns at the expense of sustainable growth, matching the skewed incentives of compensation that is contrary to shareholder interests — AS MADE CLEAR IN THE REST OF THIS PARAGRAPH], reflects a growing dissatisfaction among long-term investors with (1) the impact of short-term-focused equity markets on returns and society; and (2) the current system of corporate-shareholder communications, i.e., the quarterly earnings call, which underrepresents the long-term perspective. A coalition of investors led by William McNabb III, board chairman of The Vanguard Group Inc., has responded with a letter to CEOs encouraging them to operationalize this broad call to action from investors to share long-term thinking.

We concur with the author’s conclusion that long-term plans should be disclosed to investors to reflect these concerns.

Source: How Long-Term Investors Influence Corporate Behavior

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