Researchers are studying the idea of using incentives to encourage investors to hold shares for months or years, an effort to counter ?short-termism? in investing that some say is damaging the way companies are managed.
A global research project launched Wednesday by Mercer, Stikeman Elliott LLP and the Generation Foundation will look at the concept of granting ?loyalty? dividends or additional voting rights to ?reward? corporate shareholders for retaining their shares for a specified number of months or years.
?While we do not have all the answers, we do have some ideas we think may work, such as incentivizing longer term, engaged ownership,? said Peter Knight, Partner at Generation Investment Management and Trustee of the Generation Foundation.
?By commissioning Mercer to undertake this consultation, the Generation Foundation wants to see if this idea has merit among key stakeholders.?
Jane Ambachtsheer, Mercer?s global head of responsible investment, said the project, which is to be completed in the fall of 2013, should provide ?a much better sense of whether and how incentives could be utilized by a broader range of issuers, and if not, why not.?
Mercer is leading the project with support from Canadian law firm Stikeman Elliott LLP. The research will involve tapping investors, legal and academic experts, and representatives from corporations through interviews and focus groups.
Concerns about short-termism in capital markets ? sometimes called quarterly capitalism because of prompt stock price reactions to three-month earnings reports ? have intensified with a rise in high-frequency trading. Critics say the lightning-fast computer-driven trading that profits from tiny price differences across stock markets has disconnected movements in stock price from a company?s business fundamentals.
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