Changing The Conversation from Short-Term to Long-Term Value
Date: October 18, 2017
In his article “The False Prophet of Long Term Investing” James Mackintosh makes a nuanced argument about long-term investing versus short term trading. While he agrees that short-termism can lead to the wrong incentives for corporate management, a state of affairs he acknowledges large investors are working to correct, Mr. Mackintosh warns against blaming short-termism for meager capital spending.
At CECP: The CEO Force for Good, which works with more than 200 of the world’s leading companies, we see communication as the answer to this conundrum. Research from Harvard Business School, McKinsey/FCLT, and MIT, and results from Warren Buffet and others show a smart long-term focus—which lays out key strategies, speaks to relevant stakeholders, and addresses material risk factors–is the basis of sustainable profit. Most large companies have thoughtful long-term strategic plans, but with reporting organized solely around quarterly earnings, investors hear very little about them.
For too long, CEOs have focused on the short-term and communicated disproportionately with traders and the sell-side. When long-term strategic goals are sidelined for too long, the activists come-a-knocking. Leading companies and investors are working to bridge the communication gap. In fact, more than 30 S&P 500 companies–from Aetna to Voya–have already presented their long-term plans to major investors representing more than $24 trillion in AUM as part of CECP’s new Strategic Investor Initiative.
This is changing the conversation from short-term trading to long-term value. From a look back to a look forward. From giving a board seat to a noisy 1% trader to engaging with the shareholders who own the vast majority of most companies. It responds to major investor calls for actionable information on companies’ real value, including exactly the kind of nuanced discussion of capital investment that Mr. Mackintosh is calling for. Of course, the short-term matters, but in the context of long-term strategy and culture.