A new kind of long-term stock exchange initially approved by federal regulators now faces a less certain fate, as pension funds and other institutional investors try to figure out whether the benefits would outweigh the risk of giving too much control to founders of companies listing on it.
The idea behind Long-Term Stock Exchange Inc.'s proposed exchange is to reverse the downward trend of new companies going public, and to free companies and their boards from investor pressures to produce immediate results.
"The LTSE is designed to remove the short-term pressures that plague today's public markets and reorient companies and investors around long-term thinking," said founder and CEO Eric Ries in 2017 when announcing the concept, which is backed by prominent Silicon Valley investors. "Through brand new listing standards, software tools and advocacy, we're reinventing the public company experience with novel approaches to executive compensation, shareholder voting, disclosure practices, board and stakeholder policies, and community governance."
Among a roughly 50% decline in the number of public companies from 1996 to 2016, triple-digit increases in CEO compensation and a spike in activist investor campaigns, "we need a new approach to governance that benefits both companies and investors," Mr. Ries said in an October 2017 blog.
Efforts to reach to LTSE officials were unsuccessful.
The shift in focus to a company's long-term progress would come from giving investors more information, through listing standards that would include disclosures about a company's annual growth strategy and progress in meeting key milestones. The LTSE model also calls for new disclosures about stock buybacks, investments in human capital and research and development, and corporate policies on the company's impact on the environment and community and its approach to diversity.
Another key distinction is that quarterly guidance "is significantly restricted" to legally required reporting, with most disclosure made annually so companies are evaluated on the progress of their long-term strategy.