The tension between managing for the long term and delivering good results for the next quarter is one of the greatest challenges corporate executives face. While CEOs talk about focusing on long-term value creation, they often fail to resist the lure or pressure of short-termism.
The debate over how to solve the problem of short-termism in corporate America has been going for 30 years. Short-termism started in the 1980s with the concept of “maximizing shareholder value,” or stock price performance and dividends. It pushed companies to focus on immediate gains.
Management guru Peter Drucker summarized the root cause of the problem 30 years ago in one sentence:
“The need to satisfy the pension fund manager’s quest for higher earnings next quarter, together with the panicky fear of the [corporate] raider, constantly pushes top managements toward decisions they know to be costly, if not suicidal, mistakes.”
