Thursday, August 23, 2012

Time to stop feeding the beast...

I've been thinking a lot about the frustration many of us feel towards the way our government and our corporations are behaving towards obvious long-term critical issues such as climate change - corporations actually hiring people to sew doubt into the message so that the status quo will be maintained.

The thing it, corporations can't do anything different.  A corporation is measured by its stock price and earnings, quarter by quarter.  If the leaders of a corporation do not make decisions that optimize earnings they are fired.

This means that a corporation can not take any actions motivated by other concerns, particularly longer-term concerns such as the impact on the environment say 20 or 50 years from now or the impact on society or long-term health of populations.  Corporations are not structured that way.  We can't really blame the people in charge of these corporations.  If they did not behave this way, they would be moved aside and leaders who do focus solely on the bottom line would replace them.

I suspect that many corporate leaders would like to behave differently, would like to transform a company that truly takes long-term impacts of their decisions into account, but they just can't - if they did this, they would be fired.

What drives this short-term approach?   Wall Street.  Mutual funds are measured by their performance on a quarterly basis.  And why are mutual funds this way?  Because people leave mutual funds who aren't giving them positive performance every quarter.

So who is really to blame?  You and me - the investors.  If you are investing in mutual funds or in stocks and buying and selling based on quarterly performance, you are the core of the problem.

If we truly want to create change, we need to address this core problem.  Personally, I am getting out of mutual funds.  I am canceling my 401K and moving to a self-directed IRA, and I work to make long-term investments in companies I feel good about.  I am tired of feeding the beast.