THE LONG-TERM STOCK EXCHANGE

 

Beyond simple research, I believe our goal should be to change the entire ecosystem of entrepreneurship. Too much of our startup industry has devolved into a feeder system for giant media companies and investment banks. Part of the reason established companies struggle to invest consistently in innovation is intense pressure from public markets to hit short-term profitability and growth targets. Mostly, this is a consequence of the accounting methods we have developed for evaluating managers, which focus on the kinds of gross “vanity” metrics discussed in Chapter 7. What is needed is a new kind of stock exchange, designed to trade in the stocks of companies that are organized to sustain long-term thinking. I propose that we create a Long-Term Stock Exchange (LTSE).

In addition to quarterly reports on profits and margins, companies on the LTSE would report using innovation accounting on their internal entrepreneurship efforts. Like Intuit, they would report on the revenue they were generating from products that did not exist a few years earlier. Executive compensation in LTSE companies would be tied to the company’s long-term performance. Trading on the LTSE would have much higher transaction costs and fees to minimize day trading and massive price swings. In exchange, LTSE companies would be allowed to structure their corporate governance to facilitate greater freedom for management to pursue long-term investments. In addition to support for long-term thinking, the transparency of the LTSE will provide valuable data about how to nurture innovation in the real world. Something like the LTSE would accelerate the creation of the next generation of great companies, built from the ground up for continuous innovation.