YouSaid · the spoken record

Sarah Williamson

lines on the record: 73
first: 2018-09-03
most recent: 2018-09-03
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“I'll tell you a quick story. My son, when he was about four years old, had this habit, which I'm sure many children do, of would never walk on the sidewalk, but had to climb on the wall and would walk down the wall next to the sidewalk. And so a typical parent, I once said to him, you know, be careful you might fall off. And he looked up at me and he said, yeah, but I might not. And I've always remembered that lesson. I might not fall off.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I'll tell you about one thing that was introduced to me by so I have two daughters who are in their twenties. Do you know what the skim is? Are you familiar with this? So, the skim is a daily news feed that is written for 20-something females. First of all, it's really well done. It's funny, and it's very appropriate for that. So I read all sorts of more typical investment things, but that is one where that's how I actually know what's going on with the young women in my life.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“As I said, my family are all academics, and they've had the habit, I think, of pointing out when they think something isn't right and standing up and mentioning that I've learned from that and that there's always a debate, there's always a way to, if you see something that doesn't seem right to stand up and either learn why it is or isn't or try to fix it.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“The riskiest thing. Well, I did go ziplining once, which I thought probably wasn't that risky, but at the time it was, you know, I have three kids and they all, you know, each one of them went off of this huge mountain, and I swear I wasn't going to go. And then I was like, well, I kind of have to go. But my kids just went.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well that was probably where Justin Timberlake and Janet Jackson. Maybe that's where they got it from. Maybe they got it from one of them was watching the game. That's right. What's your biggest investment pet peeve?”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, probably my favorite sportsman, so I don't always admit this, but I played rugby in college and I played for Williams College, and we had a not the biggest team. We were a small team. And one year we played Harvard. And probably the funniest sports moment in my life was one of my teammates tackled a girl, and she reached up and grabbed her shirt to tackle her. And she ripped her shirt. And the girl did not have a bra on, and the entire game stopped and everybody fell down laughing on the field.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Our website www.fclt for focusing capital on the long term FCLT global dot org and everything we have is there so we'd welcome some input and feedback.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think it's critical because I think that many of us were brought up with the idea that the way you manage money is you start with a blank piece of paper and you sit down and talk to somebody who runs a company and you decide whether they seem to have a good strategy and know what they're doing or not. That's not the way most money is managed. And it's certainly not the way money is going to be managed in the future. We've been thinking about how do you have an engagement when it's actually quantitative structure or a quantitative investment strategy? How do you have, do computers have engagement? You know, I don't know. So I don't have the answer for that, but I think it's absolutely critical because there's no question that that is where this world is going.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's probably dovetails into thinking of asking, which is as technology has sort of just started to work its way into the asset markets, how do you think about the importance of technology on this agenda over time? Yeah.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Make that happen. So, those are sort of the top three we're working on. And then the other thing that we're working on, which is a bit of a challenge, is a scorecard. So the first question, it was sort of how do we, is this a big problem? Yes, it is. We could do more work on that, particularly in some other countries. Second is what are the practical tools? And then the third is how do we know if we're making any progress or not? Are we getting longer term or shorter term? So we're working on what are the indicators of long-term for asset owners, asset managers, and for corporations? How do we test them? How do we get that data? So we'd love yours or anybody else's ideas because we're in the midst of that process right now.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, what we do with all of our research is we develop it with our members. So we have 40 members now around the world, asset owners, asset managers, and corporations, and we sort of do the academic research. We do all the homework. We bring people together and really test it to be sure it's practical. And then we treat our members a little bit as a test kitchen. They take something off and they try it, and they'll come back and say, oh, that worked, but that one didn't. And then we refine it. And then we make it all public. So we are, as I said, we're a nonprofit. So all of that is available on our website when it gets to be at that point. So the idea is that by definition, our members are not typical. They tend to be big global, sophisticated organizations. But the goal is to create things that benefit people more broadly. So risk is one. Boards, an important one. We talked about that some. This whole engagement between investors and corporations is a critical one. And thinking about how we really...”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think that the big ones that we're working on right now, one is this more deep work on investment risk. And obviously there are a lot of people who've thought a lot about investment risk. But it's this sort of the interaction of investment risk and real people, particularly when it's not their money and particularly over time. So those time trade-offs, those communication trade-offs, I think that's really fundamental. The goal, one of our board members likes to say, the goal is excellent long-term performance with reasonable short-term performance. So what's the definition of reasonable and how do you make sure, because if you, you know, if you get taken out in the meantime, it does matter, right?”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I think that the humans are fundamentally pretty similar around the world. There are some things that are different here, quarterly guidance, for example. But this idea of the long-term short-term trade-off is inherent everywhere. And there are some cultures that are more long-term in their corporate structures because they tend to be more family-oriented. Family companies as a general rule may have other issues, but they tend to be very long term. And partly that's because they can sort of envision the little, you know, the grandbaby that they're doing it for. It's real. So some cultures are longer term in that way. Some cultures don't tolerate failure very well. And so if somebody takes a risk, and we all know in the investment world, a lot of risks don't pay off. There are places where that's not tolerated. And so they tend to be very short-term in terms of investing. We certainly haven't cornered the market on being short-term, but there's no culture that I've seen yet that doesn't have some of these short-term.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Investment business is that they're always smart people trying to figure out the angle. So the more, if we get more indexed, then theoretically at least, those active players who are left will make more money. And there should be some balance at some point there. So it's hard for me to predict who a winner from a market share would be, but I think that the goal is that the savers in the communities are the winners.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I would start with that I think the winners are the savers at the end of the day. Because remember, let's take a step back, right? The goal of this is to benefit savers who will be old at some point and need to be supported and we all know we've got a massive time bomb in terms of our pension system. So to be successful, what we hope would happen is that those savers live better in their retirement. Or those that next generation has a better standard of living. And that if the other end of that investment value chain, they're communities, they're real people. They're people who have a job who wouldn't have a job or have a product or a medicine or whatever it is that wouldn't have otherwise been developed. And so we're a nonprofit. We're a 501c3. So that is the ultimate goal is to improve life for the savers and the communities. In terms of market share, one of the things that I find fascinating about”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you imagine a world ten or twenty years from now where you've been successful and there's a meaningful shift in the amount of capital that is in the hands of, let's just call it more long-term investments. Relative to the asset management universe today, who are the winners and who are the losers in market share?”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think in general transparency is a good thing because it leads to a better understanding. There are a few cases when it's not a good thing. One of the challenges for many investment managers these days is that a lot of their clients are bold.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“We love VAR and VAL and all these things. And you have this conversation, but both sides don't really quite understand the other. Then something happens, a bump in the markets, and there wasn't a strong understanding there. So then people get very short-term. And then they want to sell, and then they put that pressure on selling. Usually the thing that's liquid, which is usually public equities. So part of the question is, how can you cut that off upfront? How can you have a better understanding? And what I see with some of the best investors is that they have mechanisms, whether it's rebalancing or whether it's the way their committees are structured or whether it's the fact that somebody has been there for a very long time or that the committee's been there a long time, so they've already got these scars that allows them to ride through those times. So a lockup can be one way of doing it, but you can also create that with structures as well.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, first of all, I think that's right. And I think one of the, there was a CIO of a big sovereign fund I know well who during the crisis was forced by his oversight committee to sell his public equities because people got scared but couldn't sell his private equities and told me later he said, I don't need an illiquidity premium. I would pay to be locked up because then I know my committee can't make me do that again. And so I think you've got this very strange situation where what we were all taught in school is there's an illiquidity premium, but maybe not. So humans make bad decisions about time and we particularly make bad decisions when we're scared. And so one of the other things that we've been working on is what we're calling a risk conversation guide, which is because what normally happens is you have some sort of investment committee board oversight group and they speak one language and then the investment and risk professionals come in and they speak”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the big differences you see in public and private equity investing in funds is that private equity experience generally has been better than public equity. There are a lot of reasons for that, one of which is, hey, we just put our money in a lockbox for 10 years. Are there different ways of thinking about liquidity of public equity manager allocator relationships?”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, of course, they're short term. You just told them to be. So, one of the other things, it sounds very simple, but that a number of our members and others are doing now, is that typically the way investment reports work is they show you return versus a benchmark, quarter, year-to-date, last 12 months, one year, three, or five, and we're actually flipping it. And so you start with the number that actually matters. Maybe it's the seven year number. And it really reframes the mind. And it really gets people starting to focus on those long-term timeframes. So a lot of this is not changing the world in a top-down way. It's poking and tweaking and recognizing our own biases and recognize our incentives and pushing on everyone and saying, are we doing something here that is supportive of long-term behavior or not?”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“clearly performance vase fees that are back-ended. There's a lot of behavioral work that says that something that is escrowed is longer term than something that's a clawback. We have this loss aversion, right? So sometimes people have these fees and there's a clawback if you then underperform. It doesn't really work with our brains very well. So something where you actually don't receive the fee until longer periods of time is clearly very helpful. So what I have found in the investment business is that most investors are really trying to do the right thing. They're trying to perform. And so most people are not gaming a fee, but you have to think about what the incentive is because that is human nature. You also have to think about the way things are presented. So sometimes investors complain that their LPs are very short-term or their clients are very short-term, but then you read their investment letter and it starts with dear investor. This quarter, we return $7.5%.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I'll tell you that when we went into this work on this whole mandate, I thought that there was going to be a silver bullet about benchmarks. We all hate them, right? Every investment community hates them, that there must be some better way. And I'm not sure that there is, because the thing with a benchmark is it's a communication tool. And there are times when managers don't perform or go way off of where they're supposed to be, way out of their mandate. And so there has to be a communication device. And the benchmark is that. Now, that doesn't always mean you have to have tight tracking error to that benchmark. It doesn't always mean you pay somebody against that benchmark. But I think having a clear set of communication tools in the investment business usually includes a benchmark.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Turnover on their team goes up, then maybe you should be worried even if the numbers still look good. So one of the things we did at Wellington years ago, I was responsible for overseeing a number of portfolios that the OCC also was responsible for looking at. And they always, of course, wanted us to put things on the watch list if they had underperformed. And we convinced them, I think we could finally convince them, that these should also put them sort of on the watch list if they had overperformed. But that's against human nature. So if something is out of expectations, whether it's too good or too bad, why? What's happening? And it's a lot easier to track that if you're very clear up front. What are you trying to accomplish and why do we think this is a good investment? The revisionist history is rampant in the investment business.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think a lot of that is about expectation setting up front. And there's no right or wrong mandate. In other words, one person could say this manager's job is very narrowly to beat a particular benchmark. And another could say, well, no, it's an absolute return. They can go anywhere. So there isn't one right or wrong way of managing money. But what's important is that the asset owner and the asset manager are on the same page about that and that there's a little bit of trust but verify. So there is a sense of why are we hiring this manager in the first place? Is it because they have a terrific team? Is it because they have offices around the world? Is it because of their investment philosophy, whatever it is? And understanding what those things are and then really tracking those, it's sort of like the KPIs on a corporate. It's really tracking those over time. If it's because they have a great team and then all of a sudden,”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“But buy high, sell, low is not one of them. So, how do you get out of that pattern? I'll give you just a couple of examples from how these set these things up. So there's some interesting ideas and the way we do our work, I should say, is that we have big asset owners and big asset managers, and we've gotten them together. It's been a little bit of a sharing process. Someone will say, well, we tried this and it worked. And somebody else says, oh, really? Well, we tried this. And it's sort of at a very safe environment. But a few of the ideas, one is this idea of a longevity discount, is that rather than, as you probably know, typically people get discounts for putting more assets to work. But there's also this idea of giving a discount over time. So it starts at whatever it is, let's say 60, 55, 50, whatever it is over time. And the reason that makes sense is for the asset owner, obviously the fee goes down over time.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the place we've started is on the mandate. So when an asset owner hires an asset manager, the way they set up that mandate can either lead to a very long-term relationship or a very short-term relationship. And that obviously that behavior then translates through to the real economy. So thoughtful long-term asset owners have done this for some time. There are a number of asset owners who think about building relationships over very long periods of time, who want their managers to succeed. They sort of put things in place that work. Unfortunately, what a lot of asset owners do is they look at the numbers, they hire the manager who has just performed well, and then because of reversion to the mean or bad luck or whatever, too much taking it too many assets, that performance rolls over, and then they fire them, and then they do it again. And so then you get this sort of sawtooth pattern, right? Which is there are a lot of good ways to invent.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“One is literally giving companies feedback, others are sort of sharing their analysis. Most equity investors, most buy side investors never share their analysis of a company with the company. But if you do sort of an outside-in analysis and you show a company, well, here's what we're looking for, and this is what we're going to look at. Most management teams are fascinated by that, and they'd love to see it. Now, they often see the sell side analysis, but again, that tends to on average be shorter term. So it's really about building that dialogue, that two-way street.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“how do you create that in a more robust way is part of the challenge. So we've got one of these idea exchanges that we've just published a few weeks ago as well about tools and mechanisms for corporates that want to hear from their quiet long-term shareholders and sort of quiet long-term shareholders that should be speaking up and have often, I think historically, sort of let the activists do it for them, which again works fine if the company is poorly managed, but doesn't work well if it's a short-term long-term situation.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, that's exactly right. And I think one of the things that is important for boards to understand, usually not when they're in the middle of an activist situation, but on an ongoing basis, is who are their biggest shareholders and what do they care about and who are the long-term shareholders? Because once you're in the midst of one of those situations, it's a little late. So one of the other things we've been working on is engagement between long-term shareholders and corporations is critical. And so how do you do that about long-term value creation? So about strategy, about building that value for the future. And there are a lot of ways that people do that. So some of those quiet shareholders will have meetings where they'll just give feedback to the management team. They'll have a management team come in and they'll say, we're not going to ask you any questions. Here's what we think you're doing. Smart management teams, of course, will ask their investors for feedback because typically those investors will see all their competitors and so on.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, but you know that BlackRock's SP 500 index fund is going to own Amazon 25 years from now with near certainty. They also tend to be quiet. So on the one hand, you have Bill Ackman's on the phone to the board, which rattles people's nerves. And, oh, Larry Fink won't be there, but someone else will be running Black for 25 years from now, no matter what you do, they're going to be a shareholder. So human nature almost dictates that the board's likely to respond to the more vocal shorter term voice.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is that their interests are not the same as that of a long term shareholder? And so if you're sitting on their board, a board of a company, and you have to make a choice between something that looks more like a J-curve is going to pay off over time or not, and then you feel that short-term pressure, you're unlikely to make that investment, even if that's the right thing for the company, for the long-term shareholder, and for the future of the community and the savers. And so that is where the problem is, that there is mathematically impossible to optimize for both a high discount rate shorter-term investor, and a lower discret discount rate longer-term investor. And so boards have to choose.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Large asset owner. They will own most companies that are listed essentially forever. They will own them in different proportions, but they will own them for very long periods of time. So they don't really care very much when value is realized. They just want value to be realized over some period of time. Activists, on the other hand, as a general rule, have a much higher discount rate. They have sort of promised their investors a much higher rate of return and sort of just, you know, the way the math works is that therefore things that come to fruition three or five or ten years out are not worth very much because you're discounting them back at a very high rate. So an activist or a short-term investor of any sort would much rather have less money sooner than more money later. And so the challenge with the activists or any short-term shareholders.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, so clearly the activist investors have had a lot of impact on boards and management teams. They've had impact where they've been involved and they've had impact where they haven't even been involved because people know they might be involved. And so the way that I think about that is if there is a company that is poorly managed, let's say they've got lots of corporate jets and they don't have their eye on the ball, then an activist can come in and they can raise the returns for everyone. They can raise the returns for both the short-term investors and the long-term investors. And that is what some of the activists have done. The challenge is most companies know that and they're trying to do that to themselves these days. So then the question is what is the timeframe of an activist versus the timeframe of a long-term shareholder, particularly for, obviously for our passive holder, but even for a large, any sort of large fund or a large”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think that a lot of it has to do with its blocking and tackling. Some of it has to do with how do they set up the meetings. Does the board, for example, spend a lot of time worrying about the quarterly numbers, or is that delegated to a subcommittee? Do they spend enough time on the strategic issues? Do they have the right people on the subject?”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Mindset. I'll give you one very simple example Amazon's board. Amazon is often quoted as a very long-term company, actually explicitly has in their corporate governance documents that their responsibility is to what they call the long-term share owner. And so they don't get themselves into this who's our duty to. Their duty is to the long-term shareowner, and that's very clear. And if you don't want to buy that stock, then don't do it. That's who their duty goes to.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the other key thing we're working on at the company level, and then we can switch to the investor side, but at the company side is the board. So what happens time and again is that the board is cited either as a source of short-term pressure or as a ballast, sort of as the long-term ballast. And so the question is why? Why does one corporate board behave in a short-term way and another corporate board behave in a long-term way? Even sometimes when they have some of the same individuals on them. And so that is part of the work that we're doing now. We've put out one paper on that, which we're calling an idea exchange. It's really meant to be a conversation starter and it came out of a summit that we had about some of the practices of longer-term boards. But that's actually one of the projects that were in the midst of. But it's very clear that the board is a key contributor to either that short-term mindset or the long-term...”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So at the company level, we have guidance, which we know is pernicious, and how that filters into competition plans and capital allocation. Are there other key areas that you're looking at at the company level?”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Pretend you've got a hypothetical project and it looks like a five-year zero coupon bond. You're going to get 000. And then in year five, you're going to get a return that's twice your hurdle rate. Will you do that? I'm not sure we could do that. That is the problem. That makes no sense if that were your money you would do that in a minute. So there are issues there and we're beginning to unpack those.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we're still working on that, but there's two problems with the capital allocation process. One is how capital is actually allocated within a firm, and that's very important. And then the other part is how that capital allocation process is explained to their investors. Investors are typically somewhat cynical and know that the management teams come and say, oh, we've got all these wonderful plans. But many management teams haven't done a great job of saying, well, over history, we've invested like this, and here's how it's paid off. And so having built a track record of being good capital allocators. And because CEO turnover is fairly high, it's easy to say, well, the last guy screwed that up, but I've got a great plan. So I think both of those sides are important, but I'll give you a quick story. I won't attribute it. I was speaking with somebody from one of our members who was talking about their own capital allocation process. And he said they look at everything over three years. So I said, well, what if you've got...”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“To act in that time frame, that shouldn't be a real surprise to anybody. And part of that comes back to the board, which is another thing we're working on.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we haven't done deep work on compensation yet, but I will tell you a couple of interesting things. The first is we've done some work with George Seraphim at Harvard Business School, who you may know, who's done a lot of work in this area, who's terrific. And one of the things that's very clear is that executives that have longer dated compensation act in a longer-term way. Now, this should not be a surprise to anybody. We think a lot of the problems around short-termism have to do with incentives. If you pay people to be short-term, they will. sort of habits, we've got all these strange habits that have built up on the capital markets. And then also some of these behavioral finance mistakes that we all know about. But if you pay someone to be short-term, they will be. So their numbers show that that's very clear. The longer compensation leads to longer-term behavior, but that the average duration of CEO compensation, realized duration in this country, is about a year and a half. So if you're paying somebody on about a year and a half, you kind of expect them.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Then the quarterly guidance clearly over time has worked its way into perceptions that meeting guidance improves the stock price and stock price is tied to compensation plans. How have you thought about compensation corporate executives?”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“There is some of that, but it's not about giving less information, it's really about changing to the information that is important. So what do investors care about? What they care about is where is a company going over the long run? What is its strategy? Or to use Larry's words, what is its purpose first, then what's its strategy? And then really, what are the indicators of whether it's making progress or not? In every business, there's some indicator. Is it patents that have been received? Is it number of customers through the door? whatever it is there are real indicators that the management team of course watches that are leading indicators and then how does that translate into the actual financials the EPS on a quarterly basis is very much a trailing number it is a outcome what really matters for investors is what's going to happen next and so it's instead focusing on what's our strategic roadmap where are we going how do we measure if we're on track”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we've done it in a couple of ways. One is it's very helpful to us. So we have a great board and group of supporters. I should start with that. So our board is made up of leaders of some of the most well-respected companies like Unilever or DAO, asset owners like CPBIB or GIC or asset managers, people, you know, BlackRock and many others. So one is by having a group of well-respected people sort of support this, get the message out. Another is by having that influence more broadly. So the business roundtable published some things about quarterly guidance earlier this year, just a few months ago. That was very helpful. We obviously have a lot of overlap with the business roundtable. So having organizations like that. And then on that one in particular, the National”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“These things, where by doing deep research and actually unpacking some of these myths, looking at the data in conjunction with some people from Harvard Business School and others, we've been able to show that. And then that, I think, has entered the consciousness, the public consciousness of quarterly guidance is a bad practice and we shouldn't be giving quarterly guidance. Not quarterly reporting, which is historic reporting of facts, and not even annual guidance, which is longer term. But this short-term quarterly guidance is a real negative.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“sort of the fundamental work on the issues about quarterly guidance. And there are a few interesting facts about quarterly guidance. The first is it's not a phenomenon in most countries. It's a U.S. phenomenon. But even in this country, it's down to about 27.5% of companies actually issue quarterly guidance. So it's a minority practice. It's very clear that some of the myths around quarterly guidance aren't true. A lot of people believe it lowers volatility of the stock. That's not true or increases valuation, the credibility premium, that doesn't exist. And so some of the myths about why to do quarterly guidance don't exist. But the problems that quarterly guidance causes are very clear. So quarterly guidance has a feedback loop to the management team, and they will often cut R&D, cut human capital, things that can be cut in order to hit it. And giving quarterly guidance also attracts short-term shareholders. If you give people short-term numbers to play, they will play them, right? So quarterly guidance is one of the...”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“We can do better, right? So, how do we do better? Our theory of change, at least, is that for companies, it's very clear long-term companies do better. For investors, the same is true. There's very good evidence that long-term investors do better than short-term investors. What's interesting about this long-term issue is it's in people's own self-interest. We're not asking somebody to do something that's not in their interest. So most investors and companies say, well, I want to be long-term, but I'm getting pressure from the other guys. And the asset owners say we're a really long term. We've got 25-year liabilities, but these asset managers and companies act short-term. The asset managers say we're really long-term, but if we underperform for a couple quarters, we'll get fired. The companies say we're long-term, but the investment community is putting this pressure on us. So the idea is to get those three groups together to say, okay, why is this happening? And where are those pinch points? So I'll give you one example. We've done a lot of work on quarterly guidance. Quarterly guidance has actually gotten a lot of press in the last month or so, but we have done”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“industry so the work that we did was split by industry so in other words we compared within an industry the short and long term companies and you see clearly the amount of time that is long term in you know tech is different than in mining but if you look within an industry you still see that variation and in terms of the size isn't really the factor what tends to be one of the drivers is how strong a company is which may or may not have to do a size but if a company is a going concern and expects to be a going concern for long periods of time then obviously they can behave more long term if a company gets to the point where they're more distressed and they feel like they've got to sort of live to fight another day then naturally they will”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source
“Short term companies are more pro cyclical. Markets go get bad. They lay everybody off. They retrench, whereas a long-term company will then go and try to pick up customers and employees and so on.”
2018-09-03 · Capital Allocators · Sarah Williamson – Focusing Capital on the Long-Term (Capital Allocators, EP.67) · IDENTIFIED FROM THE TRANSCRIPT · source