Impact of Extending Companies\' Time-Horizons

Speaker A The next question that obviously has to be considered is that if we get the legal structure right and enforced wisely and well, and if we therefore therefore start to eliminate the conflicts of interest, what will this do to the way companies are actually run? Well, the first thing it will do is that it means that companies that need to pay attention to time horizons beyond the present three to five years where the majority of them are working, the companies that need to go beyond that and I think most companies need certainly to go beyond five. How many companies need to go beyond ten is something I'm not entirely sure of. Certain very important long range companies, huge companies do need to do that. But the great majority of the others would perhaps first of all be comfortable in the five to ten year slot. What do they need to do to perform well in there? Well, the very first thing that happens is that we would have some independent directors on the board. And I think we can rely on the fact that if investment institutions are involved in choosing people who are going to be influential in their companies, they're going to choose as well as they can and they'll get some wiser and more independent people. And the independence is more important even than the wisdom then those people are going to press for longer term incentives. They're going to say look, we must have in place say five to eight year goals as well as the shorter term goals and therefore we want to give incentives to the management to look at that horizon and pay them well. One of the ways we could do this is to pay them a substantial number of deferred shares who they only acquire ownership of five years plus out, whether they're with the company or whether they're not. They only acquire them then and subject to having met some interim performance measures such that they have every incentive to look at the longer term. And incidentally, you would have to do away with stock options and anything that gave them their really substantial rewards for very much shorter periods. There will be exceptions to this where you need a major turnaround in a company, a sort of firefighting thing where you could and probably should reward people for much shorter periods. But we're talking about majority of companies that are not in an emergency situation. Now, the minute you give those kind of incentives then you've started to create the demand for these longer term skills, the demand for which has hardly existed up to now. Now, some people will come forward with those skills who you didn't expect, who you hadn't thought of because you hadn't seen them as shorter term CEOs. Other good CEOs who've been forced to be short term will suddenly say well, goodness, this gives me the opportunity to do what I really want to do. They will start to study the subject, they will start to pull in other people. They will seek management consultants who work with firms that do have those horizons. But unquestionably. Step number one is create the demand. And over the years, the supply will be forthcoming. That is one market rule we can entirely rely upon.