Heavy-hitters backing patient capital and an end to “short-termism”

A lot of substantive action  recently by advocates of patient capital.

Last week in Santa Fe, the Slow Money Alliance held its first major conference to explore issues related to the philosophy of, well, slow money:  investing capital into local food systems, taking into account how that money impacts the communities involved and doing so by creating a deep, long-lasting partnership with entrepreneurs.

And, at almost the same time,  a coalition of diverse heavy-hitters at the Aspen Institute Business & Society Program produced a ground-breaking report called Overcoming Short-termism.  The group’s members range from Warren Buffet, Vanguard founder John Bogle, and Duke Energy president, chairman and CEO James Rogers to the AFL-CIO’s Richard Trumka and Harvard Business School professor Jay Lorsch.

They’ve been working for a few years now to create a blueprint for creating a more responsible financial system that takes a long-term and more sustainable view. Their contention is that an extreme emphasis on short-term results has disastrous results, ultimately harming long-term growth.

What’s really interesting is that they have specific, practical recommendations for how to reform the system.  One proposal, which they suggest will be the most effective, is to use market incentives to encourage patient capital. That would include:

–Revising capital gains tax provisions or implementing an excise tax in such a way that they discourage “excessive share trading and encourage longer-term share ownership.”  For example, you might change capital gains rates to decrease based on the number of years you hold a specific stock.

–Remove limits on capital loss deductibility for very long-term holdings.

–Adopt minimum holding periods of time-based vesting in exchange for boosting shareholder participation rights.

Also, they propose taking steps to “align” the interests of financial intermediaries and investors, that is, to make sure managers of college savings, retirement and other funds don’t make decisions based on their short-term gain rather than long-term performance.  And, they suggest requiring more disclosure of investor activity, for example, of  shareholder activists who assume voting power while, at the same time, shorting the company’s shares.

All this activity indicates that something profound and substantial is happening here.  I’m not particularly optimistic about Obama being able to pull off  much change in the financial system. There’s too much resistance from the banking industry and others who own politicians.  But, it’s possible that some of these specific changes from the Aspen group  will have legs, that the Slow Money Alliance can help fuel a grass-roots response–and that the patient capital philosophy has  real staying power.