Short-termism is short-sighted

By F R (Rhys) Robinson

You might have seen a variation of the Stanford marshmallow experiments at some point in your life. Originally performed in 1960, the premise was simple: children were given choice between one treat immediately (usually a marshmallow), or two treats (i.e. two marshmallows) after 15 minutes. A minority of children opted to eat the first marshmallow immediately, while most chose to delay gratification. However, only a little over a third of the children managed to wait the full time for the second marshmallow.

This is a neat demonstration of the human condition. Often, we start out with the best intentions, but give in to the desire for instant gratification at the expense of long-term gain.

We may do this for many reasons. For example, the 2016 EY Poland Report ‘Short-termism in business: causes, mechanisms and consequences’ notes that public companies are particularly prone to short-termist behaviour because of the pressure they face from shareholders to deliver immediate results.

EY lists some of the factors that contribute to this pressure as new technologies, reduced trading times and transaction costs, increased market volatility, media coverage, and the increasing role of institutional investors.

EY suggests that the results of short-termism winning out over long-term value creation are shortened CEO tenure, the neglect of investment activity and the neglect of human capital.

A Harvard Business School working paper ‘Short-termism, Investor Clientele, and Firm Risk’, found that “short-term companies attracted short-term investors (bringing with them a whole new set of performance pressures on executives) and that the financial and strategic performance of these companies was more volatile—and riskier—than that of the long-termers”.

Obviously, we can’t ignore the short-term. Imagine if a CEO told investors not to worry about the share price tanking because it’s just a short-term issue! The point I’m making is that it’s important to find a balance. We can’t compromise long-term value by focusing exclusively on short-term growth.

While much has been written about the “tangible” short-termism numbers (obsessing over quarterly results and share prices), I think it’s just as important (if not more so) to focus on the “intangibles” – people and culture.

If your company becomes mired in short-termism, you will end up with a culture where people will do whatever is necessary to get a quick result, even if it’s unethical or unwise. You will build a culture where people jump ship quickly if they can’t see immediate change, rather than being willing to journey together towards a long-term goal. You will forget to invest in your people because you’ll only be interested in what they can do for you now, and not how you can build their capacity to support and encourage future growth.

The solution to overcoming short-termism is going to sound a little obvious: build long-termism into your business.

  • Set long-term goals and measure and track them. This doesn’t just relate to things like return on money spent – it also relates to developing your people and the impact your business can make in your community and beyond.
  • Build a culture where a balanced approach is valued – where targeting long-term value creation is incentivised and planning for the future is just part of what you do together.
  • Communicate your long-term vision and goals with all your stakeholders, as well as your plans for achieving them, rather than only sharing short-term targets, projects and decisions. If your people – both internal and external audiences (such as partners, suppliers and investors) – are part of your long-term plans, they are more likely to buy-in to what you’re doing and commit to taking the journey with you.

As Jack Welch once said, “Any jerk can have short-term earnings. You squeeze, squeeze, squeeze, and the company sinks five years later.” Let’s not build companies and our country like that. Let’s rather build to last – our businesses, our economy and our people.


F.R. (Rhys) Robinson, PhD is Executive Director, Infinitus Reporting Solutions (Pty) Ltd.



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