Not long ago, many American investors held that innovation took time to develop and that capital needed to be “patient” to realize a reasonable rate of return. Today, the converse is true: there is now great emphasis put on short-term monetary returns and the need for immediate gratification on capital investments.
On March 14, Governance Studies at Brookings hosted a discussion exploring how “impatient” capital can harm the economy by reducing incentives for innovation and shortening the time horizon for business managers. A panel of experts examined how policy and regulatory mechanisms should be structured to incentivize the business sector to refocus on longer-term time horizons and “patient” business practices.
I think this may be the most important question in corporate governance. Although there is agreement among the panelists that we need long-term investors, there is less agreement as to how that goal should be attained.
While some, like Jack Jacob of the Delaware Supreme Court, advocate longer terms for corporate directors, others, like Judy Samuelson of the Aspen Institute, favor transaction taxes or skewing the capital gains tax. I find myself much more aligned with Samuelson than Jacob but am delighted to hear from a broad range of perspectives.
Read the transcript and/or watch the video by going to the Brookings site. I can’t embed the video code in my blog, nor can it be viewed on an iPad, since it uses Adobe flash drive. Let’s make the need for long-term capital a topic of debate among presidential candidates.