Sixty-three per cent of business leaders say the pressure on their senior executives to demonstrate strong short-term financial performance has increased in the past five years, according to a survey by the CPP Investment Board (CPPIB) and management consulting firm McKinsey & Company.
Seventy-nine per cent of directors and senior executives said they felt the most pressure to demonstrate strong financial performance over a time period of less than two years. Only seven per cent said they felt pressure to deliver strong financial performance over a horizon of five or more years,found the survey of 1,038 people in North America and Europe.
Almost one-half of respondents (44 per cent) said their company's management team uses a primary time horizon of less than three years when they conduct a formal review of corporate strategy. But 73 per cent said this primary time horizon should be more than three years and 11 per cent said the horizon should be more than 10 years.
If senior executives took a longer-term view to business decisions, the top two benefits for their companies would be innovation and strong financial returns, said respondents.
CPPIB and McKinsey have jointly launched an initiative to set out the case for institutional investors and corporate boards to focus on long-term value creation: Focusing Capital on the Long Term.
"We recognize the scale of the challenge in changing short-term attitudes and behaviours that have become all too ingrained in business, investment and society. We are not looking at an immediate fix to the problem of short-termism. This will take time, persistence and commitment from all involved.This initiative is focused on creating a road map for change,” said Mark Wiseman, CEO of CPPIB.
In 2014,CPPIB and McKinsey will release initial recommendations and push for the adoption of behaviours and mindsets that foster a significantly longer-term perspective across the investment industry and in the boardroom.
"There is strong evidence, across the value chain, that long-term thinking creates enduring benefits for companies, their investors, and society while short-term thinking destroys value. Our aim is to move quickly to action to address the issue of short-termism and develop practical tools and approaches to help institutional investors and corporate directors execute long-term strategies,"said Dominic Barton, global managing director at McKinsey & Company.
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