Eric Ries is on a mission to overhaul the way corporations conduct their business by establishing what he calls a Long-Term Stock Exchange.
Speaking Tuesday during the Fortune CEO Initiative conference in San Francisco, The Lean Startup author made his case for his new company, with financial backers including the venture capital firm Andreessen Horowitz.
By creating an entirely new stock exchange that focuses on the long-term financial health of a company, Ries believes that new companies won’t have to deal with the pressures of pleasing fickle shareholders every quarter.
Echoing comments made by Apple CEO Tim Cook on Monday during the Fortune event, Ries criticized the conventional quarterly earnings cycle, in which shareholders judge a company’s financial performance within a 90-day period.
By focusing on such a small, truncated period of time, shareholders don’t actually have a good idea of true financial health of a business as the years progress, Ries explained.
The creation of a new stock exchange would allow for shareholders to invest in a company for a longer period of time without the fear that a bad quarter means potential doom. The fact that a company’s share price might plummet 10% for a day, would not be considered “news,” because these long-term investors would be in it for the long haul, Ries said.
He believes that “the voting power of a shareholder should be proportional to how long you own the stock.”
“Someone who day trades shouldn’t have the same corporate responsibility as someone who owned the stock for 10 years,” Ries said.
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Under his new stock exchange, Ries would also require that “every board have a product and strategy committee.” Many boards currently consist of too many lawyers, which can be a problem “if no one is watching long-term strategy,” Ries said.