National Post - Financial Post Magazine
AND NOW THIS
There are many reasons for investors and corporations to focus on the present
There’ s just one problem with short-term ism: It doesn’ t exist.
THERE IS NO EVIDENCE THAT SHORT-TERMISM IS RAMPANT AND/OR THAT IT IS UNDERMINING CORPORATE OR ECONOMIC PERFORMANCE
Nobody starts off a comment about short-termism without quoting management legend Peter Drucker: “The… specific task of managers is to harmonize in every decision and action the requirements of the immediate and long-range future. Managers can not sacrifice either without en dangering the enterprise .”
The criminal charge against corporation sand today’ s investment community is that they are guilty of short-term ism. Managers have allegedly abandoned long-range future planning and are bo wing to market pressures, industry structures and zapped-out characters from The Big Short into short-term thinking that is allegedly sap ping capitalism of its vigour and vitality.
Platoons of big-name consultants, many with major influence over Canadian executives and policymakers, have been on this case for many years. Michael Porter, who held some sway over Canadian CEOs in the 1990s, sees business short-termism as a major threat to national growth objectives. Dominic Barton, global managing director at Mc Kinsey& Co. and, apparently, a hand-holder to Prime Minister Justin Trudeau, writes forcefully of the need to “Fight the Tyranny of Short-Termism.”
Barton says “business and finance must jettison their shortterm orientation and revamp incentives structures in order to focus their organizations on the long term .” In Capitalism for the Long Term, a widely quoted 2013 Harvard Business Review article, Barton implied that the 2008 crisis was a function of excessive short-term thinking. The quarterly tracking of profits, executive compensation schemes and other manifestations of “quarterly capitalism” are killing the economy. In another HBR article in 2014, Barton and Mark Wise man, CEO of the Canada Pension Plan Investment Board, claimed that asa result of ram pant short-term ism ,“Companies are less able to invest and build value for the long term, under mining broad economic growth and lowering returns on investment for savers .”
As compelling as all this has been to legions of consultants, lawyers and corporate governance gurus, there is a problem. It all appears to be balderdash. There is no evidence that short-term is mis ram pant and/ or that it is under mining corporate or economic performance. More than a year ago, Martin Mauboussin, head of global financial strategies at Credit Su is se, wrote ,“The problem is that short-term is mis very difficult to prove .” Many of the commonly perceived symptoms of short-term ism, he said, simply don’ t hold up to scrutiny.
Roger Martin, former dean of the Rot man School of Business, also cited the lack of evidence for the short-term ism plague recently. Whether it’ s a problem or not “is fundamentally unknowable ,” he wrote. “There is no control group; we can’t compare the performance of America with short-term ism to that of America devoid of short-term is m—or even prove beyond a doubt that short-term ism exists in the first place.” Nevertheless, Martin still maintained that it exists .“I see it with my own eyes, and I am not waiting with bated breath for the study that proves that short-term is mis here and it is a problem .”
Mauboussin says that even if there were evidence, it should be no mystery. There are many reasons for investors and corporations to short en their horizons. New technologies sweep into existence over the short term. It took 71 years for half the U.S. population to get a telephone ,14 for a cellphone and 10 years for Internet access. In the meantime, the U.S. newspaper business lost 60% of its annual revenue in six years. BlackBerry Ltd. (née Research In Motion Ltd .), where Roger Martin once was a director, arguably failed because the company drifted into long-term thinking as Apple Inc. ate its short-term lunch. The price of oil fell 75% over two years. Put that in your long-term ism plan.
John Maynard Keynes once said :“The long run is a misleading guide to current affairs. In the long run we are all dead .” A good corporate mot to today might be to take Keynes to the next level. In business today, there is no long term.