That's a myth. Yes CNBC loves short term stuff as it makes good TV. In the real world see Black Rock (biggest asset manager) CEO public urging long term focus https://www.blackrock.com/corporate/investor-relations/larry... . See also Amazon and all the other profitless companies just listed as good examples that long term has value.
That's a pretty poorly explored position.
I said that CEO undercuts your point. You claimed short-term-ism was a "myth," then quoted a CEO saying that a lot of people focus on short term investing, rather than long term investing. Therefore making it not a myth, according to your own source.
Most shareholders (37%) are retirement accounts which have long term goals.
"Companies exist to maximize shareholder value" is the myth that just won't die.
Doesn't matter if the stock holders who pushed for the decisions managed to flip their stocks when they were still rising in value. Aren't most stock holders playing this game to flip stocks, without caring much about the particular company they're making money off?
[0]: https://qz.com/1623418/index-funds-now-account-for-half-the-...
1) Never ever go public.
2) Never ever accept VC money.
Problem is, you'll likely get outcompeted by companies that do either or both of these things.
You say "ruined", I say "fulfilled their ultimate purpose as disposable wealth-extraction machines enriching executives".
I totally agree that the stock market's design encourages short-termism. But this is entirely appropriate in service of the idea that heroic individuals are chiefly responsible for company outcomes.
(And in more modern views maybe you should worry about the other stakeholders too.)
Most shares in most companies I've seen have been owned or controlled by executives or by institutional investors (mutual funds, insurance cos., pensions) that tend to vote with executives' recommendations. Without high-level executive support, shareholders are free to do whatever they want, but the important ones typically don't want.
Since we believe that executives are the ones creating the wealth, it is just that the wealth flows out of the company and towards them. Executives giveth and executives taketh away.
I wonder how many people actually believe that.
Passive shareholders, well, don't participate on decision making.
Expect this feature to get worse with increased share of index funds. But not by much, because most people never were active anyway.
That's not true, fund managers vote on behalf of those shareholders, and not always go along with the board's position. See for example Vanguard's voting record: https://about.vanguard.com/investment-stewardship/how-our-fu...
How so? Index funds buy when the shares are high and sell when they're low.
Toyota group is keiretsu where Toyouta Motor Corp. has owners like Toyota Indutries, Denso and some big Japanese banks and insurance companies.
Short term stock prices aren't entirely controlled by short term results. Just look at PE ratios for growth companies. Short term results often change the price a lot because its an indicator for future results. Stuff like one time write offs don't really affect the price.
One is to have dual class share structures where minority owners have majority of the voting shares (e.g. Facebook, Google). Another is to create a new type of stock exchange that incentivizes long-term ownership (e.g. LTSE long-term stock exchange).
Toyota might not have chase short term profits like many American companies choose to do. After two hours of googling it (and reading english web pages only, not japanese webpages), the only notable thing I discovered was that Toyota pays out 30% of its profits in the form of dividends and spends 20% of its profits on share buybacks for a total shareholder return of roughly 50% of earnings each year. This indicates that Toyota is shareholder friendly but it's not clear if this is an obligation or a choice.
Instead of chasing short-term profits, I've observed that Toyota spends fair budget on advertising and showboating futuristic looking hype technology that is never intended to be released or used. Some investors primarily look at the daily news and are satisfied with this strategy. The technology Toyota intends on using isn't hyped up; it's kept a secret until it's actually released to drivers.
Finally 90% of Toyota Corporate Employees in the Plano, TX US Headquarters are contractors from other companies. Those ones sure as hell aren't getting any quarterly performance bonuses or any executive compensation. At best, the executives bonuses are getting to keep your air-conditioned job for another 3 years.
Toyota has been publicly traded for 70 years and their shareholders (which are primarily other large Japanese conglomerates) have never even tried to make these kinds of short-term-over-long-term pushes and keep electing Toyoda family members into the top leadership positions.
When ownership is concentrated, decisions can be made based on long-term ideology. When ownership is highly distributed, and especially when indirect via indices, decisions are made in favour of widely accepted and broadly applicable metrics of performance, which tend to have only short term confidence.
It's simple: be Japanese and not American. Japanese companies don't have this kind of problem, precisely because they aren't American and their society doesn't value enriching executives over all else, and instead values a stable and harmonious society.
Not a single Japanese company, while the lists are dominated by the US ones. What you're saying is nothing other than the ancient TV trope about the difference between Japanese and the Americans (east vs west).
disclaimer: I have 0 ties whatsoever to the US.
Maybe that's naive and they're just saying one thing and doing another.
No company ever tries to go out of business, ergo they optimize to exist forever or get acquired. Whether the board & management understands how best to achieve that long-term sustainability is another matter and one that shareholders get to vote on.
Why does it seem to always be that way, though? Most every company I see appears very shortsighted with no thought to the long game.
Owners (shareholders) and boards are not full of idiots either. They realize the temptation of short term pumps. Thus, executive compensation is typically shaped to encourage longer-term thinking (e.g. stock that does not fully vest for years, bonuses based on future company performance years out, etc). And if they do reward short-term metrics, it's for a specific reason.
That said, japanese companies tend to have longer time horizons than american companies (decades vs years) and perhaps that's better. But then again, the further out you go, the less your planning will work out. So who knows for sure?
Yep. Arguably an over-fixation on "short term profits at all costs" would be a gross violation of one's fiduciary duty if it puts the long-term viability of the enterprise at risk.
> The way the stock market is designed (and the fact that stockholders often get to appoint the board who gets to appoint the CEO) means they're going to put short term profits over long term viability.
Easy: Don't do that. Either 1.) Don't be a publicly traded company, or 2.) Don't let short-sighted shareholders dictate your management decisions.
The way the stock market is designed (and the fact that stockholders often get to appoint the board who gets to appoint the CEO) means they're going to put short term profits over long term viability. Many companies have been ruined and continue to be ruined by this short-term-ism chase for quarterly and yearly profits.
For example look at the field of Customer Retentions. It used to be focused on satisfaction & delight which are both long term success strategies (both to grow and to retain), but in the last twenty years Customer Switching (i.e. making it harder/more costly/more time consuming/more stressful/etc to switch) has become the norm, this is a short term strategy since it improves short term retention metrics at the cost of long term returning customers and poor word of mouth (i.e. nobody returns or joins after they leave, if you made the switching process hellish). It is a great way to keep your quarterly and yearly churn low, but a poor way to run a business.
It used to only be businesses with artificial monopolies that would do this (e.g. Verizon, Comcast, etc). But recently we've seen companies in fairly competitive spaces adopted a similar short term "suicide strategy" like LogMeIn (Remote Support Software), The New York Times (News Publication), SiriusXM (streaming audio), etc. All of which are likely chasing quarterly performance metrics tied to executive compensation.