Past Insights

Al Gore and David Blood, his partner in the multi-billion private equity fund, Generation Investment Management, recently opined on “How businesses can embrace environmental, social and governance metrics,” on the Op-Ed page of The Wall Street Journal, an unlikely location for such a conversation – but, just the place it should be happening.

Their narrative is spot on, worthy of reading if only to remind us of the basics that must guide us out of our current economic and environmental mess.

Much of the essence of their plea is focused on the dangers of our obsessive short-term focus – a theme I revisit often on this blog.

Gore and Blood recommend (among other ideas) that we:

• End the default practice of issuing quarterly earnings guidance;
• Align compensation structures with long-term sustainable performance; and
• Incentivize long-term investing with loyalty-driven securities.

All excellent recommendations.

Companies should follow their guidance; however, we have tax, regulatory and securities laws that all push in the opposite direction. Without changing the “system” that financially incentivizes short-term investment, we will not make substantive headway.

So, that’s why I would add the following two suggestions:

• Radically alter capital gains taxes. We must discourage traders who hold stocks for a matter of seconds and encourage long-term investors. I would advocate a tax rate of 90% on investments held less than one month, 75% on investments held less than a year, with a tax rate of 0% for investments of 30 years or more.
• Extend the required holding time for stock options that are converted into common shares to qualify for long-term capital gains treatment.

What do you think? Please comment or pose a question below.