Why right now beats the future
Company culture is one of four factors causing us to sacrifice future gains for fast results at work, writes James Adonis.
We live in a world of shorttermism, do we not? Take, for example, our health.
Many of us opt for the short-term satiation of chocolates and cake over longterm wellness.
Or take the environment, where we shriek over the short-term pain of plastic bans while ignoring the long-term benefit to our oceans.
Or take the hip pocket, where short-term splurges on, say, smashed avocado and toast smash our long-term ability to save and invest. Many other examples can be found in the business world, too.
The opening sentence of a recent journal article summarises the problem most succinctly:
‘‘Almost 80 per cent of CFOs [chief financial officers] … admit they would sacrifice economic value for the firm in order to meet that quarter’s earnings expectations.’’
So who cares about long-term profits so long as bonuses are based on short-term targets, right?
Of course, it’s about more than just bonuses and targets.
As business professionals, we’re regularly making decisions that compel us to weigh up short-term conveniences over long-term advantages. It’s just the former frequently overpower the latter. Recruitment is a case in point. Many of my worst hires have occurred when I was desperate to fill a staffing gap.
Nervous I’d be left without key personnel when I needed them most (that is, the short term), I’d say yes to candidates even though there were warning signs. (Like the guy who subtly removed his Make America Great Again cap just as he was entering the foyer.)
The long-term consequence of those decisions was months of painstaking performance meetings followed by further extensive and expensive recruitment processes to find a better candidate.
Another case in point can be seen with our not-so-discerning selection of customers. There have been countless times when, in an attempt to alleviate short-term cashflow issues, I substantially lowered my fees or took on consulting work for some of the most troublesome of clients.
In both scenarios, long-term consequences ensued, such as getting stuck perpetually doing work I despised at prices that diminished my self-worth.
There are four causes of short-termism revealed in the article I mentioned.
They were identified based on a comprehensive analysis conducted at Washington State University.
The first cause is the external environment. Sharemarket pressure is a prime culprit for large companies because, in a bid to bump up share prices, investors demand short-term results. For smaller businesses, look no further than the big supermarket opening next door, or the similar firm ranking higher on search engines, or the competitor getting a regular gig as a talking head on television.
In each of those cases, short-term sacrifices become more probable out of desperation. The second factor, unsurprisingly, is the way we incentivise others. At the moment, Australia’s royal commission of inquiry into banking misconduct is exposing the swamp into which employees dive when a short-term commission or bonus is enticing enough. Even when that swamp contains the deceased.
The third comprises internal factors. More succinctly, the workplace culture.
If short-termism is present, especially among owners and managers of the business, you can confidently bet it’ll spread.
Because if there’s one thing we know about human interaction, it’s that the way we think and act is contagious.
The fourth and final factor is the individual, particularly their response to uncertainty. Many of us, when confronted by an unpredictable future, nervously prioritise a short-term solution because it’s less scary. It’s a much easier way of coping in a world where it’s difficult enough to predict what’ll happen in a year’s time, let alone in 10.
That’s why we often find ourselves saying things like, ‘‘We’ll cross that bridge when we get to it,’’ in the blind assumption the bridge will still be there when we eventually get to it.
‘‘Almost 80 per cent of CFOs [chief financial officers] … admit they would sacrifice economic value for the firm in order to meet that quarter’s earnings expectations.’’ — James Adonis.