Now admittedly John Maynard Keynes said that in the long run we’re all dead (though someone else once added, “Yes, but not all at the same time!”).
Seventies entrepreneur Jim Slater used to say that a long-term investment was a short-term investment that has gone wrong. And, of course, we’ve all seen project plans that have ‘year four’ hockey stick projections.
So an overemphasis on the long-term at the expense of keeping on top of the day-to-day business can be just as fatal – but judging by a recent report, that’s not the way businesses appear to work. A US study by two universities and the National Bureau of Economic Research demonstrates quite conclusively that senior executives trade off long-term economic value so as to meet short-term earnings targets to satisfy investors. This finding comes two years after PricewaterhouseCoopers castigated companies, saying that many businesses “confuse short-term shareholder appeasement with effective cost control”.
The bizarre thing is, many businesses knows this is going on – surplus cash gets committed before the year-end on a use-it-or-lose-it approach to budgeting, good projects get deferred till a period that has some slack in it – but no one does anything about it. Homer Simpson put it best: “Marge,” he exclaimed, “if you’re going to get mad at me every time I do something stupid then I’m going to have to stop doing stupid things.” Maybe we could start by encouraging everyone – from line managers to FDs to institutional investors – to regularly ask, “What stupid things have been done in order to make the company look really clever?”
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