A new stock exchange focused on the longterm Michelle Greene

what we’re looking to do is to really

change the way that companies show up in

the world and in order to make that

change we have to think about the system

in which companies operate so companies

aren’t operating in a vacuum

they’re operating in our current capital

markets which are really overly focused

on the short term and we want to create

the new system and that new system is

something that will enable companies to

act differently so when the focus is on

quarterly reports and as you heard from

the last question in fact in the last

session with hero when that focus is too

heavily on quarterly reporting that puts

a lot of pressure on companies to behave

in short-term ways and to make

short-term decisions and when that

happens we always for me when I was at

the Treasury Department in the last

financial crisis this became abundantly

clear because what we could see was that

there were financial companies that had

taken actions that were having a real

negative impact on their customers on

their communities and on the economy as

a whole and that was because they had

acted in ways that were too focused on

short-term results and weren’t focused

on the broader picture and so we want to

change that kind of behavior by changing

the whole system and we want to create a

different kind of financial market that

allows for a different kind of

capitalism now the reason that a stock

exchange is the way to do that it is

really for two reasons the first is that

if you want to change the system you

have to change the rules and that’s what

stock exchanges do they make rules they

make listing standards that companies

that list on the exchange have to follow

and our rules are all geared toward that

long term focus what we’re trying to do

is create a place where companies can

maintain their focus on their long term

mission and vision and at the same time

be accountable for their impact on the

broader world so to make these rules we

created five core principles and those

core principles are really about how you

can put them together to come up with a

long term

system and the core principles also have

some specific requirements with them and

these requirements are very different

than those of any existing exchange so

for example companies that list with us

commit to adopting publicly a policy on

diversity and inclusion and that’s

incredibly important in today’s world of

course companies that list with us

commit to investing for the long term in

their employees also very important and

in the current system treated as

overhead rather than investment and

companies that list with us commit to

taking in a certain approach to the

environment so there’s a bunch of other

standards as well but the broader point

is that these standards taken together

create a different kind of commitment

than companies can make now because it’s

a different set of rules than any Stock

Exchange has and that commitment is the

second reason that a stock exchange is

important we’re in a moment where

there’s a real move to change capitalism

there’s moves towards stakeholder

capitalism and there’s a desire to

really think about things differently

and we’ve seen that everything from the

Business Roundtable letter to different

types of pledges and frameworks and it’s

become really difficult for a company

that really means it and really intends

to operate differently to distinguish

itself how can that companies show that

they’re not just signing on to something

because it’s kind of the interesting

thing of the day but in fact they intend

to operate differently and listing on a

stock exchange is a legally binding

commitment it’s a way to say publicly we

are not only operating this way today

but we intend to continue to operate

this way and that sounds a really

powerful signal it’s a powerful signal

to a company’s investors to their

customers to their employees and it’s a

powerful signal that those groups can

then use to make decisions about what

companies they want to invest in what

companies they want to buy products from

and where they want to work because

increasingly that really matters to

people I think we’re in the current

moment we have an opportunity for a

reset we have a chance to really change

our system and if we can create

a long-term focus system where companies

are freed up to really make long-term

choices what those companies will end up

doing is creating more long-term value

and that’s good for companies but

they’ll also do it in a way that’s

better for the rest of us and this is

the type of new system that we need we

need it because it’s the right thing to

but we also need it because it’s the

only way that we can create a system of

capitalism that is more sustainable more

equitable and something that will work

for everybody so I feel optimistic I

feel optimistic that in this current

moment we can use this reset to change

capitalism and I think this is one area

that we really can build back better

Thanks thanks for sharing that Michelle

you and I talked about it in this moment

the last thing that most companies want

is to be judged on quarterly results

because the near-term numbers are often

pretty pretty bad um but I’m curious

what you you know it seems like a lot of

the response to quarterly results is the

availability of data like there’s so

much data out there and even if the

companies themselves aren’t providing

them sometimes they’re provided by a

third party research firms you know

they’re satellites looking in on parking

lots and and all of this data is

collected and put out there and so how

do you you can’t sort of stop the flow

of that so how do you how will companies

kind of manage that against you know you

can’t you can’t stop that from getting

into the hands of investors so so what

do companies do to kind of refocus how

will the market help them refocus on the

long term despite that yeah it’s a great

point and look more information is a

good thing and particularly if it’s

information that investors can use and

and employees and customers and other

stakeholders can use to really make

smart choices that align with their own

values so what’s really important here

we recraft the narrative right now the

narrative is too focused in the

financial markets on quarterly earnings

per share and that’s just not the right

way to judge where a company’s going or

how it’s impacting the world or how it’s

going to succeed over the long term so

what we’re really trying to do is

rewrite the narrative for success

companies should have their own plan for

how they’re going to succeed over the

long term they need to tell their

stakeholders including their investors

how they’re going to measure success

over that journey because of course

there’s still has to be accountability

but the accountability should be for the

right things it shouldn’t be for

quarterly EPS it should be for your

long-term plan your long-term strategy

and how you’re executing against that

and importantly how your execution

against that is impacting a broader

group of stakeholders and the world so

one of your principles focuses on time

horizons but you let the companies or

you’re going to let them companies

themselves define what they consider

long term why did you make that decision

and does that create challenges for

investors in terms of like comparing one

company to another yeah we so we took a

principles of based approach generally

because what we found was that it was

really important to not try and do a

one-size-fits-all you know long term in

a retail company might be very different

than long term in an energy company for

example right and what you want the

company to be able to articulate is what

are the time horizons that you’re they

are using for different things right so

you have some companies that will say

our time horizon is infinite but

obviously they don’t do strategic

planning for an infinite time horizon

right so do you do your strategic

planning over three years or five years

and how do you use those different time

horizons for different activities and

and values within the company and

sharing that information publicly with

your stakeholders so that they

understand what that means and how you

approach that that’s an important part

of kind of rewriting the narrative and

getting to the point where we can be

talking about success in a more

meaningful way than quarterly

financial results that makes sense I I

also wanted to dig into another one of

the principles around compensation so

just to illustrate the difference

typically executive compensation is

disclosed to shareholders what will be

different about what’s disclosed for a

company on the LTS II yes so there is a

lot of disclosure around executive

compensation but I’m not sure there’s a

lot of effective disclosure around

executive compensation right so there’s

a lot of information but sometimes you

can’t even tell from that information

what the actual compensation is so what

we’re trying to do is not to require

more not helpful transparency around

compensation what we want companies to

do is instead to talk about their policy

around compensation how do they think

about linking compensation to long term

success and it doesn’t require

additional disclosure around any

particular executives compensation it

requires additional disclosure around

how the company is going to make those

important links and when we were doing

our work to devise these standards

executive compensation was actually the

number one concern of investors so it’s

something that investors are really

paying attention to and that they feel

like they don’t necessarily have the

right kind of information despite all

those requirements when companies report

sort of how they’re adhering to your

principles how will you share that with

LT se investors and like how often won’t

be disclosed will it be quarterly dare I

ask yeah so the way that the system

works is there are these five principles

and companies need to develop policies

around each one they develop metrics

that are specific to their company and

they share those publicly so the

policies are publicly available all the

time on the company’s website of course

if they make any change to the policy

that’s something that they would discuss

when they make that change but in terms

of the ongoing reporting requirement we

don’t want to make it a quarterly report

think that’s the right timeframe we

think it’s when there’s a material

change and then updating at least

annually but because they do keep these

policies public anytime that they change

the public will know about that

investors will know about that and

that’s something that all of their

stakeholders can have transparency into

so how will you hold them accountable I

mean and so this isn’t just some sort of

squishy marketing message I mean will

you be monitoring their how they update

and how they I mean your are you are you

making sure they’re doing it yeah so

accountability was really important to

us and of course this is where you have

to balance how prescriptive or you’re

going to be and how do you still find

accountability even in a

principles-based system and that’s

something that we really are really

committed to and find really important

so it happens in a couple of different

ways first of all when companies

initially list with us and they develop

these policies in these five in these

five areas we actually as the exchange

make a judgment about whether those

policies are consistent with the

underlying principles so for example if

someone came along and said you know our

environmental policy is to burn fossil

fuels forever because we think climate

change is false well that’s not actually

a long term for pencil policy so you may

have a policy but it doesn’t actually

comply with a long term principle so

there’s that initial check of do they

comply with the principles the policies

themselves are made public but then

there’s also a whole series of

information that we receive as the

regulator within the exchange and that

information is something that we use to

make sure that the company’s not just

saying we’re gonna do this they have a

real actionable plan for implementation

and that they have ways that they’re

going to make sure that it’s really

happening within the company you know

it’s gotten board approval if that’s

necessary or there’s a plan to enact it

throughout the company so it has to be

really actionable and then the other

piece of this is that these policies are

part of the listing standards and that’s

a a very serious commitment for

companies and if companies put out there

into the world pursuant to the listing

standards that they are going to do

something there is a really legally

binding up

to do that so we think there is a

serious level of accountability here I

have such a long list of questions but I

think we should take a few from the

audience so we’ll have the first one up

here it is from Chadbourne is it more

important to get a large company to

modify their short term behavior or for

smaller startups to start with that

philosophy both no we do we are actually

working on both ends of that spectrum

because we do think both are important

we want to see this change for big

existing public companies they can do

lists with with us so it’s not that they

have to change that but we want to see

those behavior changes with big existing

companies but we also think it’s really

important to start early because the

earlier that a company starts thinking

this way the more embedded it becomes in

their culture in their operations and as

they grow that will just become

something that they incorporate in a

stage appropriate way as they move

forward and then when they’re ready to

list there will be a public market that

aligns with those values so we think

it’s not an either/or it’s about okay

we’ll take another question from Steven

do Bitcoin and Bitcoin and other digital

currencies benefit a long-term market

that’s an interesting question and it’s

not you know it’s not one that we’ve

spent a lot of time focusing on to be

honest because we’re initially working

within the US system as it exists now

later phases might move in different

directions but we feel like initially we

want to start working within the current

system and then we’ll start looking at

all of these other issues that could

impact having a more long-term focus

system holistically so not not something

we’re working on now but could be in

phase 2 all right let’s take one more

from the audience and then I have a one