Short-term Erodes Prosperity


    The 2008 financial crisis was caused by short-term behaviour by investors, says Mark Wiseman, outgoing CEO of the Canada Pension Plan Investment Board. And it has gotten worse since then. He told the ‘Annual Public Meeting of the Canadian Coalition for Good Governance’ that this is not just a concern for investors. It should be a concern for corporations, corporate leaders, and policymakers because short-term approaches erode prosperity since decisions are not being made that maximize value for shareholders and society overall. Michael Sabia, CEO of the Caisse de dépôt et placement du Québec, said the issue is that it means capital markets look at companies as commodities to be traded. This is a “fundamental disconnect” because they are not commodities, they are, in fact, the drivers of growth and innovation in economies. What makes it hard to change, he said, is it is not about any one thing, but a bunch of things such as shareholders with short-term ideas towards stocks, compensation, and the rise of activist shareholders. However, one of the ways of breaking away from short termism is get investors to think and act like business owners. They have to think of themselves as owners, not tourists, and, unfortunately too much capital is just tourism. However, Ron Mock, CEO of the Ontario Teachers’ Pension Plan, sees a potential area which could drive change. Around the world, there are large pools of capital that are taking a long-term approach. And it is not an insignificant amount of money. In Canada alone, there is $1 trillion in assets taking positions on longer term investments.