The World We Design- Andrew Ross Sorkin Zeitgeist Americas 2012

Google Zeitgeist October 15, 2012
The World We Design
>>Lorraine Twohill: Last session of today. This is very uplifting session to bring us
home for the day. Before we start, I wanted to quickly mention Jeremy's Icebreaker is
giving everybody a gorgeous Icebreaker T-shirt. You will find a card in your room you need
to bring to the concierge's desk to get your T-shirt. They are very, very cool. Thank you
Jeremy. This final session is called The World We
Design. We have a phenomenal moderator who is going to join us on stage, I want to introduce
Andrew Ross Sorkin, who is a financial columnist with the New York Times. We are thrilled to
have you here, Andrew. Andrew is also the co-anchor Squawk Box on CNBC and has written
a very famous book, Too Big to Fail. So Andrew, please come on stage. Thank you.
[ Applause ] >>Andrew Ross Sorkin:
What I wanted to do, if I could, was to take a moment to speak briefly about a theme that
I imagine we're going to be hearing about a little bit this afternoon from our presenters,
especially those who are starting and creating and running emerging businesses and emerging
enterprises. It has to do a lot with their success and
the success as a result of what I'm going to describe as long-term thinking and patience.
And the reason I wanted to bring up this idea of long-term patience in terms of thinking
is here we are at Google, and at the Google Zeitgeist event, and everybody here has their
-- I was about to say iPhone, I shouldn't. I should say their Nexus device or their Samsung
device or whatever they have, Android device, and we live in this very, very instant world.
We want instant gratification, we want response time, we want to tweet, we want to FaceBook,
we want to do whatever. But when it comes to business, and when you
think about your own enterprises and the decision making that goes into it, one of my greatest
worries these days is that when you think about markets and specifically capital formation,
there's become a remarkable sense of short-termism that has creeped into every facet of business
thinking. I want to give you some stats just to hopefully make everybody think here for
a second. Consider these numbers. The average stock today in the public markets is held
for -- can you guess? 22 seconds. [ Laughter ]
>>Andrew Ross Sorkin: Okay. Now, 70% of the stocks that trade in the market on any given
day, the volume you see on CNBC at the end of the day is being moved by computers, high
frequency trading. The other 30% of stocks, out there in the world, the average hold time
is seven months. That's the number. So take out high frequency trading, seven months is
the long-term holds. Of the world's actively managed mutual funds
in this country, nearly 100% of the portfolios are turned over every single 12 months. Okay?
A survey of more than 400 corporate managers recently found that almost four out of every
five respondents indicated that they would decrease discretionary spending on areas such
as research and development, advertising, maintenance, and hiring in order to meet short-term
earnings targets. And more than half the respondents said they would delay new projects, even if
it meant sacrificing value creation. They say that -- they actually responded and
said that the object for doing so was to smooth out earnings or to actually hit the quarterly
target. Now, I say all of this -- by way of background
in that we live in a time right now where we keep talking about shareholder democracy.
And we claim that we, all of us in this room and the country, wants more shareholder democracy.
We want a bigger seat at the table. We think that if we just had a seat at the table, we
would be the long-term thinkers. But I would argue to you that we are the problem.
That we have become the ultimate ADD nation. And in many ways, when you think about what's
happening in corporate America, we are getting exactly what we are paying for. Now I wrote
this book Too Big to Fail, to quote FDIC chairwoman Sheila Bair, she said the overarching lesson
of the financial crisis was the pervasive short-term thinking that helped bring it about.
And she's absolutely right and we absolutely have a problem.
I was with a CEO last week, you all know this CEO, a Fortune 50 company. She has made some
serious investments over the last couple of years that have not paid off, not yet. They
may or may not pay off in two years. I will bet you within the next two years she will
lose her job or the company will be broken up. That can't be the right answer. Now some
say we need to incentivize managers differently. We need to give them more skin in the game.
That's what we say. We want everybody to have skin in the game. And every time I think about
skin in the game, I therefore think about Dick Fuld, the former CEO of Lehman Brothers.
This is a number worth remembering. Dick Fuld had a billion dollars of stock in his company.
He had, quote, unquote, more skin in the game than just about anybody in the business. He
rode his billion dollars of stock all the way down to $56,000.
That's the number. When you really think about what we can do
to incentivize people and motivate people to make the right decisions, it is a very,
very tough task and money is not the only answer.
Finally, Google, FaceBook and others, have created governance systems to try to push
back on some of this pressure. But in all honesty, my worry is it's only going to really
help at the margins. Ultimately we are going to need a new level of trust and patience,
and that's something that's only going to come from everybody in this room, hopefully
not just today, but when you go back to wherever you came from, to talk about that patience
that's needed.