BOWER AND PAINE
- closer links between executive compensation and achieving
the company’s strategic goals - more attention to risk analysis and political and environmen-
tal uncertainty - a strategic (rather than narrowly fi nancial) approach to
resource allocation - a stronger focus on investments in new capabilities and
innovation - more- conservative use of leverage as a cushion against
market volatility - concern with corporate citizenship and ethical issues that
goes beyond legal compliance
A company- centered model of governance would not relieve cor-
porations of the need to provide a return over time that refl ected
the cost of capital. But they would be open to a wider range of stra-
tegic positions and time horizons and would more easily attract
investors who shared their goals. Speculators will always seek to
exploit changes in share price— but it’s not inevitable that they
will color all corporate governance. It’s just that agency theory,
in combination with other doctrines of modern economics, has
erased the distinctions among investors and converted all of us
into speculators.
If our model were accepted, speculators would have less oppor-
tunity to profi t by transforming long- term players into sources of
higher earnings and share prices in the short term. The legitimizing
argument for attacks by unaccountable parties with opaque hold-
ings would lose its force. We can even imagine a new breed of inves-
tors and asset managers who would focus explicitly on long- term
investing. They might develop new valuation models that take a
broader view of companies’ prospects or make a specialty of valuing
the hard- to- value innovations and intangibles— and also the costly
externalities— that are often ignored in today’s models. They might
want to hold shares in companies that promise a solid and continuing