Toyota must surely rank among the most innovative of corporations. It led the Japanese recovery from World War II and turned the U.S. auto industry upside down with its attractive fleet of small cars that were both energy-efficient and well-made. The latter was the decisive breakthrough, in my book, as "the Toyota way" became a byword for quality that other automotive companies the world over strive to emulate.
Now Toyota has come up with another radical innovation, and one that might have an even greater impact on the way great corporations do business. Earlier this month Toyota shareholders approved issuance of 50 million new shares, the new "Model AA" stock, which locks in the stock's owners for five years.
The Model AAs are a hybrid financial instrument that look like stock but work more like convertible bonds. They carry voting rights but are not listed on any exchange. When they mature, owners can sell them back to the company at the issue price or convert them to ordinary stock. In the meantime, they receive a guaranteed dividend that increases each year.
So what is the point? Toyota wants to create a pool of money that it can invest in the cars of the future, the development of which may require a long gestation period. This money will not be subject to the whims of investors demanding quick returns. Interestingly, these shares can only be sold to Japanese, which will help isolate them from the short-term mentality that dominates our financial markets.
If a U.S. company were creating a fund like this, it would no doubt call it a "lock box" (with apologies to Al Gore), and I hope this idea gets a hearing on these shores. The short-term mentality is doing serious harm to our economy as more and more corporations spend their surplus funds to buy back their own stock, buy other companies or pay out dividends -- usually at the expense of capital investment and research and development. If we do not do something about this unfortunate trend, it will eventually undermine our competitive edge in the increasingly competitive global economy.
Some have postulated that corporate CEOs are excessively focused on short-term gains because their ample paychecks are based in large measure on the market price of their stock, but there is more to it than that. They live and work in a cultural milieu that stresses short-term thinking. The digital age, with its rapid-fire advances and overnight billionaires, is a critical part of this exciting but troubling scenario.
Not everyone buys into this, of course. A few successful companies refuse to play the short-term stock value game and are clearly building something for the long haul. But the herd is caught up in the short-term mindset, oblivious to a few outliers. They might behave differently -- and more prudently -- if they had substantial funds independent of the usual stockholder dynamics. Perhaps Toyota, which set the standard in quality manufacturing, has something fresh to teach corporate America about managing money.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.