March 1, 2021
Chief Communications Officer
The announcement by Apple that it will lower its projections of revenue because of slowing iPhone sales in China highlights the challenge of running a public company amid the pressure to show growth every 12 weeks.
Though Apple attributed the revision mainly to the slowdown in China, the news also reflects the reality that people are holding onto their phones longer.
The lengthening of the cycle reflects limits to boosts in performance and the cost of the devices themselves, but it also stems from improvements by Apple to the operating system that allow older phones to run more smoothly, as well as the company’s lowering the cost of replacing your phone’s battery.
All of which raises the question whether a conflict exists between pleasing customers by making phones that last longer or pleasing Wall Street by forcing upgrades as a way to sell more phones. Put differently, would Wall Street reward Apple more if its phones were worse?
That tension — between balancing the needs of building businesses and having an impact over years and decades, as Apple has, and satisfying the demands of public capital markets that measure success in weeks and months — lies at the heart of why we are building LTSE.
“We find ourselves as a society in a situation where it is very difficult to run a functioning public company for the long term,” Eric Ries, LTSE’s founder and CEO, told Bloomberg recently.
To be sure, the head winds buffeting Apple do not blow solely from the canyons of Wall Street. In China, the ubiquity of WeChat means, as Ben Thompson noted in a post last year, “that for the day-to-day lives of Chinese there is no penalty to switching away from an iPhone.”
Compared with rivals such as Alphabet, Apple conducts fewer of its experiments in things such as self-driving cars in plain view of investors. Or maybe upgrading your phone is less fun than it used to be.
Still, judging from the sell-off in shares of Apple that followed the company’s announcement on Wednesday, the pressure to show growth in the short term can drag down even a company that expects to finish the year with revenue and earnings per share in its developed markets at all-time highs.
LTSE aims to create a public market ecosystem that enables companies to focus on building value over time. That is, to measure success in years and decades instead of in weeks and months.
We believe that changes such as encouraging companies to publish leading indicators of future growth, limiting the emphasis on quarterly predictions, and allowing long-term shareholders to have more of a say can help to end the preoccupation with the short term and benefit all market participants.
Of course, transparency matters as well, and companies should continue to be open with investors about finances and operations.
As a follow-on to our application to the Securities and Exchange Commission to operate a national securities exchange, we anticipate filing listing standards that are designed to enable companies to thrive over the long term, and we are working with companies to promote this focus.
Our aim is to develop a set of corporate governance principles that bring companies into closer alignment with their long-term investors and that enable them to advance their visions while meeting the needs of shareholders and society.