Tenure Investing

In the academic world, junior faculty members at many schools are expected to apply for tenure after accumulating several years of experience. If they receive it, they are awarded a relatively high level of employment security, and various perks of seniority too.

But if they don’t? To put it gently, they are “expected” to seek employment elsewhere.

Many commentators have suggested that this tenure system is a relic of a bygone era, and speculate that it may be replaced by a more contemporary business employment model. But hardly any one has suggested that it may be adopted by the contemporary business community.

Until now! A group of financial entrepreneurs is proposing to do just that. They’ve developed a plan to create a new stock market that would specialize in corporations that adopt the principle of “tenured shareholder voting power.”

So how would it work? And what purpose would it serve?

A “tenure voting” firm would reward long term investors by increasing the amount of shareholder voting power as ownership is maintained for longer periods of time. An investor who holds onto a stock for ten years, for instance, would possess more voting power than a comparable investor who has only owned a stock for two years.

The purpose of the plan would be to encourage patience and long term thinking. Like tenured academics who remain professors for a very long time, the plan would seek to develop investors who likewise remain with a firm for extended periods.

Is there a catch? In the financial world, there is always a catch. In this situation, for instance, one may feel concern that an entrepreneurial founder of a company may exploit the tenure mechanism to earn back voting control after selling it. Thus, an individual like Mark Zuckerberg could sell voting shares in Facebook, earn back voting control through tenure, and then sell again.

Thus, this approach isn’t a perfect solution to the problem of encouraging long term investment perspectives. Nevertheless, it’s an intriguing concept, and a creative application of an academic practice that no one suspected would ever be adopted by the investment community.