“Can’t Treat Companies Like Commodities”

Posted Friday, February 28th, 2014. Filed Under Corporate - Tips/Tools Blog

I recently read this article in the National Post, Financial Post section, “New investing model needed” (p.FP1-2, Thursday February 27, 2014 written by Nicholas Van Praet) that brings light to a different way of doing business. Here is a summary:

Michael Sabia, chief executive of the Caisse de depot et placement du Quebec, made a statement about modern market capitalism that the market model has to be changed – away from the short-term focus of money-making and towards a greater focus on long-term investment and company building .

For many years Canada and other world economies have been treating companies like commodities – buying and selling at a whim.

Sabia says, “It’s not logical to determine the future of a company with only a perspective of maximizing its price in the short term”.

For six years after the 2008 financial crisis, a growing concert of key investors have been calling for a shift away from the focus on so-called quarterly capitalism. This topic is constantly being reviewed by the OECD, the World Economic Forum, Canada Pension Plan Investment Board and other international bodies. The shadow of ‘shot-termism’ has continued to advance and the situation may be getting worse according to Dominic Barton, the global managing director at McKinsey & Co. and Mark Wiseman, CEO at the Canada Pension Plan Investment Board.

In Canada the debate looks at shareholder rights plans, or poison pills, which are devices used by companies facing unwanted takeover bids.

Quebec is taking a different stance: Quebec’s securities watchdog has proposed changes beyond what others in Canada have suggested and that is to let corporate directors decide what’s in the best interest of the company without the intervention of – securities authorities.

Many key voices in this country, including the Supreme Court, have said shareholders should not always get the last word on a takeover bid.

People argue especially corporate leaders in Quebec that a company is no longer accountable only to its shareholders but to a much larger base of interested people.

Mr. Sabia says that certain companies – for example those with significant innovation, investment size or job creation potential – are too systematically important to let futures be determined by their short-term share price. They have a longer-term value to society and must be developed. The advocates recognize the value of performance and that this is often a driver to show success (tied in to short-termism).

Something to think about…..

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