L'industrie du luxe et L'économie de la Connaissance

Abstract

It was always that case that joint stock companies exposed shareowners to the moral hazard21 that the management might pursue its self-interest over a horizon of a decade or two, rather than taking chances that would pay off in the long run - in blooming profits and a high share price. Now short-termism has been aggravated by the financial sector. Mutual funds have stooped to the practice of extorting from the CEO of a company in which they hold shares an agreement to focus on meeting earnings targets one quarter ahead; the CEO who focuses instead on innovation for the sake of the long-term will find that the fund managers will dump the company's shares. Moreover, the pay of the mutual fund managers themselves, rather than being based on the price performance of the shares in which they invest, is based on the expansion of their shareholdings, no matter how badly performing in the future. It is extremely important, therefore, that institutional reforms be made that would align fund managers toward the long-term and, for good measure, that would liberate the CEOs of businesses from the tyranny of quarterly earnings targets 22. Copyright 2013 De Boeck Supérieur. All rights reserved.