Corporate timescales: Short-termism versus long-termism - 3.4.1

Short-termism - where a business prioritises its short term reward rather than long term rewards such as investment in research and development, staff or technology.

Long-termism -  where a business is focused on sustained growth through building long term relationships with suppliers and other external stakeholders, significant investment in research and development, perhaps at the expense of shareholder returns/dividends in the short term, and meeting customer needs despite short term needs.

SHORT-TERMISM

Management who can be described as "SHORT-TERMIST" tend to emphasise certain performance measures, such as:

• Share price
• Revenue growth
• Gross & operating profit
• Unit costs & productivity
• Return on capital employed

As a possible consequence, other more longer-term measures of business performance might become less important, such as:

• Market share
• Quality
• Innovation
• Brand reputation
• Development of employee skills & experience
• Social responsibility & sustainability

Possible Indicators of Short-termism

How might you tell that the management of a business have a short-termist outlook?
Potential indicators might include:

• Management bonuses and other financial incentives based on achievement of short-term objectives
• Low or falling investment in R&D (including compared with competitors)
• High dividend payments rather than reinvesting profits
• Overuse of takeovers rather than internal growth 

 LONG-TERMISM 

An increasing number of businesses argue that short-termism is highly damaging to the business and societal needs. This can be hard to put into practice as businesses do need to "prove themselves" by delivering profit increases to satisfy shareholders.

Key features of long-termist companies are:

• Family like corporate culture
• Long term investment in R&D in spite of paying dividends to shareholders and instead reinvesting retained profits back into the business.
• Soft HR strategy in order to recruit and retain top talent
• Focus on innovation and customer service