Promoting the Long-Term Management of Public Corporations Through a Reform of Canadian Corporate Law
Short-termism, a tendency to overemphasize strategies that generate immediate financial results at the expense of long-term profits, is a serious issue that the business community faces. Short-term market pressures and the responsive behaviour of corporate boards undermine long-term economic prosperity and social welfare. While select investors and executives may benefit financially from this short-termism, it largely runs counter to the interests of long-term investors and other stakeholders. Without concrete measures, it is unlikely that we will address the problem of short-termism.
This article makes recommendations directed at encouraging long-term oriented thinking in boardrooms. It proposes two regulatory measures that, if jointly implemented, would dissuade boards from managing corporations for the short-term and insulate them from market pressures: first, imposing a fiduciary duty upon directors to act in accordance with the corporation’s long-term interests; and second, requiring executive compensation to be aligned with the corporation’s long-term interests.
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