There’s nothing wrong with that, but when it becomes the basis for every decision, short-termism has a corrosive effect on a business.
An extreme example is the bonus culture that led traders and financiers to take ever-more risky bets on financial products they didn’t understand, to the ultimate detriment of their companies and the economy.
Growing businesses are not immune from such dangers. Slashing prices to secure sales in a shrinking market, or cutting marketing costs to avoid a loss while competitors steal the limelight, are examples of tactics that might get you through a downturn, but in the end, won’t do you any favours.
The business secretary, Vince Cable, has been fretting about such issues of late. A consultation was launched last October asking how the government might be able to help companies and markets avoid the dangers of short-termism, or as he put it, ‘ensure that growth is not compromised by capricious or volatile markets’.
An acerbic response to this came from the Institute of Directors: ‘The IoD suggests that governments, with their own short-termist tendencies, are not well placed to criticise companies for not always following a long-term strategy.’
There’s some force to this. After all, since the consultation was launched, Cable’s leaked comments about his ‘war’ with Rupert Murdoch have seen him stripped of some of his responsibilities and he may now have some short-term concerns of his own, such as how long his political career might last. There have been seven business secretaries in less than 10 years, the IoD’s chairman Miles Templeman points out – each with their own initiatives and ideas which didn’t always get far beyond the drawing board.
It’s not that Cable doesn’t have a point. Being publicly quoted does leave you exposed to the interests of shareholders whose view might be considerably shorter-term than your own. But as this exposure is integral how public markets operate, it’s pretty hard to see how governments could do much about it.
The responsibility for fighting short-termism surely lies with companies’ boards, whose job is to give both short- and long-term concerns due consideration, and to some extent with larger, strategic shareholders. Appropriate remuneration structures can help too.
Unfortunately, though, the price we pay for free and open markets is that sometimes people will take a short-term view, with unwelcome consequences for others. It’s the same with democracy: we get a choice every five years, but have to accept that governments won’t usually look much beyond that horizon (witness the state over-borrowing that exacerbated the financial crisis in the West).
To take the kindest possible view, the government enquiry into ‘a long-term focus for corporate Britain’ is a well-intentioned waste of time.
