Silicon Valley Extends Culture of Innovation to Governance

November 20, 2017

Companies and investors fed up with our public markets’ excessive focus on short-term earnings and profits at the expense of long-term strategy may be interested in the Long Term Stock Exchange (LTSE), a new governance model emerging from Silicon Valley that was recently featured in The Wall Street Journal. According to LTSE founder Eric Ries, 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.”

The key feature of the LTSE is tenure voting, where the voting power of shares increases the longer investors own them. Other planned governance mandates include bans on linking executive pay to short-term financial performance and releasing quarterly earnings guidance, though SEC rules would still require LTSE-listed companies to publish quarterly results.

While critics argue that tenure voting will entrench management, Ries believes it is “an experiment worth running,” and is “better than the solution favored by some Silicon Valley firms: severely limiting the voting power of ordinary shareholders through two or more share classes.” Writing on the LTSE website, Ries says that the LTSE “is on track to open as a new public markets option in 2018” and “aims to file [its] Form 1 with the SEC by the end of the year to register as a national securities exchange.” If approved by the SEC, the LTSE would become the 22nd national securities exchange to operate as a self-regulatory organization under SEC oversight.

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