Institutional investors should be more active in pressing publicly listed companies to pay more attention to long-term results, says Power Corp. Of Canada chairman Paul Desmarais Jr.
Rather than simply selling shares during hard times, major investors can participate actively in the creation of long-term shareholder value at companies in which they have significant stakes, Mr. Desmarais said in his presentation Friday at the annual meeting.
They could also push more actively for government policy changes in such areas as voting rights and capital gains taxes such that longer-term value creation is encouraged, he said.
"The vast majority of a company's value resides in the long term," he said, citing studies that indicate an increasingly short-term mindset in financial markets in which only the latest quarterly results matter.
There is a worrying shift away from "long-term capitalism" towards "quarterly capitalism," he said.
The average period of time investors hang onto their shares has dropped to seven months from seven years over the past 40 years, he said.
Chief executives' terms are much shorter, quarterly results have an undue influence on the movement of shares, as well as on media reports and on the outlook of boards, which end up shaping management's decision-making, he added.