Corporations would award long-term shareholders “loyalty rewards” of extra dividends, warrants, and additional voting rights as incentives to overcome short-term earnings focuses of corporations and investors, according to a concept Mercer is developing with two other organizations.
“I think it is an ambitious idea,” said Jane Ambachtsheer, Mercer partner and global head of responsible investment, who is working on the project commissioned by Generation Foundation. The foundation is an advocacy arm of Generation Investment Management, whose chairman is Al Gore.
Corporations would encourage long-term ownership and build support for long-term strategic decision-making by offering shareholders such loyalty rewards for holding shares for a specified time.
Corporations could implement the idea without regulatory action, Ms. Ambachtsheer said.
The project organizers, currently in the fact-finding stage, plan to host in the first quarter of next year a series of round tables and individual meetings with representatives of corporate issuers, asset owners and investment management firms “to get feedback on the proposal (and feasibility) … and on alternative ideas to cultivate more engaged ownership by investors,” Ms. Ambachtsheer said.
The group plans to release a draft report in June and a final report in fall, Ms. Ambachtsheer said.
The project seeks to address “quarterly capitalism,” Ms. Ambachtsheer said. It is a “problem executives increasingly cite as a need to respond to short-term pressures by the markets (causing) undue focus on quarterly earnings guidance and performance,” taking away from a longer-term strategic focus, Ms. Ambachtsheer said.
“Outside of France in particular, it is not a well-known concept,” Ms. Ambachtsheer said. L'Oreal Group and L'Air Liquide SA introduced loyalty rewards this year for longer-term shareholders, Ms. Ambachtsheer said. Only a handful of French companies offer loyalty rewards, she added.
Mercer, which is leading the project, is also collaborating with the law firm of Stikeman Elliott, which is providing legal perspective on the concept, Ms. Ambachtsheer said.