In defence of the long term
Business should push back against the march of short-termism to bring about positive change, says Atholl Duncan.
We need to talk about Kevlar. No, not the Hollywood film about how things can unravel with your moody teenager, but the para-aramid synthetic fibre that is in so many products today, from body armour to cricket bats to kayaks. It’s iconic, resilient and middle aged - Kevlar has just turned 50.
But would Du Pont’s favourite product have ever been invented in today’s business environment? It first went into R&D in the early to mid-1960s, but didn’t make its way to market until 1971. Would today’s short-term focus in life, business and the boardroom have had the patience to stick with Kevlar or would we have bailed out by the fourth quarter?
We seem to be surrounded by an increase in short-term thinking. There are the investors preferring short-term returns over investing for the future; the analysts demanding quarterly progress or the damnation of downgrading; and the short-selling vultures devouring the healthy meat of shareholder value.
How much has short-term thinking destroyed shareholder value? In the 1970s, only 50 per cent of profits were distributed to shareholders. By recent years that had risen to 90 per cent. Much of this in the US was fuelled by share buy-backs, aiming to drive up share price at the cost of reinvestment in the business.
How do we really build trust and inspire confidence in business?
Then there are politicians pursuing short-term policies to buy a few votes at the next election, and the climate change deniers polluting today with little thought of tomorrow. There’s short-term thinking in our pension system, hurtling towards a precipice. Health policy, too, is arguably focused on applying sticking plasters to the wounds of today while neglecting the failing vital organs of the future.
Some would claim that our current Brexit challenges stemmed from the short-term objective of lancing a boil in the Conservative party, rather than doing what’s best for the British economy in the long term.
As I get older I seem to care more about the long-term issues, such as how do we really build trust and inspire confidence in business? Trust is evaporating in nearly every major market in the world.
To address that, the International Federation of Accountants (IFAC) have put on their long-term thinking hats.
As the G20 global leaders gathered in Germany earlier this month, they were confronted by a dossier of suggestions from IFAC about how we can regain the public’s trust and make the world a better place.
Foremost is a drive to unite global business around collaboration to tackle corruption and advance responsible conduct. That’s the essence of ICAS’ own 'Power of One'.
Next on the list is strengthening governance in the public and private sectors. Add to that better public financial management. IFAC champions are moving from cash-based to accrual accounting in the public sector, pointing out that three-quarters of OECD countries have now adopted accrual accounting for year-end reports.
Accountants, at the heart of every major private and public business, are however in a unique position to bring about global change.
IFAC’s manifesto for change also includes building trust in a secure digital environment and embracing integrated reporting to help better decision-making. Making regulation smarter; sorting the international tax system; and creating a better environment for SMEs also figure in the IFAC top 10.
Cynics might think a document like this won’t change the world. Accountants, at the heart of every major private and public business, are however in a unique position to bring about global change.
In business, we often look two ways: we take absolute responsibility to shape the future of our own business, yet we look mainly to government to tackle the greater societal problems.
As politics lies in a state of inebriated dysfunction, maybe it is time to accept that governments and politics won’t change the big stuff. The true way to restore trust for business leaders is to take more responsibility into their own hands. Then we could genuinely bring positive change, way beyond the scope of our day jobs.
Business leaders acting and thinking for the longer term could be considerably more powerful than politicians fretting about tomorrow.
This article first appeared in the July/August 2017 edition of CA magazine.