Ries told me he was working on an idea for an alternative market that would provide liquidities for companies that dont want to go public but need an exit to satisfy their investors. He said the current public market structure is so heavily weighted towards short-term thinking that its ultimately bad for business. If you truly want to create a long-term company thats going to survive through generations of ownership, the current system doesnt support that, he said. But it should its like a bug in the system.
Ries said even a company thats planning for the long term such as Amazon has to pay attention to quarterly earnings reports. And even for companies with dual-class stock structures such as Facebook and Google compensate thousands of employees with short-term stock options, which affects perceptions of corporate health. They pay attention to the stock price, Ries said. They want it to go up and they dont want it to go down, and that is a real hindrance to innovation. Youve got to be able to make disruptive bets.
Companies also have to think through the psychology of how quarterly reports are perceived and factor that into their trading strategies. If you eliminated all that high-frequency trading and emotional trading if that was just not part of the system then I think the stock price would be a lot less volatile, movements of the stock price would be a lot more meaningful, and wed have a more nurturing and supportive environment for these companies, where they would have less pressure to do the kind of bad stuff that we dont like them doing, and more opportunity to invest for the long term.
