Changes in the compensation instrument can also help – for example, remunerating in equity is better than in cash and remunerating in junior or convertible debt might be better than either.29  (d)  Taxation/Subsidies: Authors have suggested a variety of ways in which government could penalise short-duration holdings of securities, or incentivise longduration holdings, using tax and / or subsidy measures. These measures differ in detail, but the underlying principle is to link them to the duration of an investor’s holdings or the length or nature of a company’s investment.30  Some of these initiatives have been tried and tested in differing degrees, at different times and in different countries. They have not obviously arrested the short-termism trend. It might be time to increase the level of policy ambition if the telescope is to be corrected, the voting  26  Aspen Institute (2009), CFA (2006). 27  Duruigbo (2011). 28  Securities and Exchange Commission (2010), Aspen Institute (2009). 29  Haldane (2011). 30  Aspen Institute (op.cit. ), Poterba and Summers (1995). BIS central bankers’ speeches  13  machine socialised, the savage civilised. Public policy could help keep the plums in the pudding. Without intervention, the long could become shorter still. References Aspen Institute (2009), “Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business Management”, The Aspen Institute Business and Society Program, September 9. Barton, D (2011), “Capitalism for the Long Term”, Harvard Business Review, March.
These projects are often felt to yield the highest long-term (private and social) returns and hence offer the biggest boost to future growth. That makes short-termism a public policy issue. But what would be an appropriate public policy response to this capital market failure? A number of proposals have been suggested by various authors. These include: (a)  Transparency: The lightest touch approach would be to require greater disclosures by financial and non-financial firms of their long-term intentions – for example, their long-term performance, strategy and compensation practices.26 For financial firms, this might include metrics of portfolio churn. This could be accompanied by a programme of educating managers, investors and advisors of their fiduciary responsibilities. (b)  Governance: A more intensive approach would involve acting directly on shareholder incentives through their voting rights. For example, fiduciary duties could be expanded to recognise explicitly long-term objectives.27 More concretely, shareholder rights could be enhanced for long-term investors, perhaps with a duration-dependent sliding scale of voting rights.28  (c)  Contract Design: There have been various attempts over the past few years to make compensation contracts more sensitive to long-term performance and risk. This includes employment contracts conditioned on long-term performance, or with deferral or clawback.