Harvard Business Review Managing for the Long Term
Managing for the Long Term
In this bundle we examine how a focus on maximizing shareholder value tin can threaten companies' wellness and financial performance.
Does short-termism destroy value? The question is increasingly debated by leaders in business organization, authorities, and academia. But little hard show has been presented on either side of the issue, in role because the phenomenon involves many circuitous factors and is hard to measure. Seeking to quantify the effects of curt-termism at the visitor level and to assess its cumulative impact on the nation'south economic system, we tracked data on 615 nonfinancial U.S. companies from 2001 to 2014 (representing 60% to 65% of total U.S. marketplace cap). We used several standard metrics equally proxies for long-term beliefs, including the ratio of capital expenditures to depreciation (a measure of investment), accruals as a share of revenue (an indicator of earnings quality), and margin growth. To ensure valid results and avert bias in our sample, nosotros compared companies only to industry peers with similar opportunity sets and marketplace atmospheric condition. Adjusting for company size and manufacture, we identified 167 companies (most 27% of the total fix) that had a long-term orientation. Then nosotros examined how all 615 companies performed. The results were clear: Equally these graphs testify, the long-term-focused companies surpassed their short-term-focused peers on several important financial measures and created significantly more jobs. They too delivered above-boilerplate returns to shareholders and had a 50% greater likelihood of being in the top quartile or decile at the end of the menses we measured. (1 caveat: Nosotros've uncovered a correlation between managing for the long term and ameliorate financial performance; we haven't shown that such management caused that superior performance.) What if all U.S. companies had taken a similarly long-term arroyo? Extrapolating from the differences higher up, nosotros estimate that public equity markets could have added more than $1 trillion in asset value, increasing total U.S. market cap past almost 4%. And companies could have created five million more jobs in the United states—unlocking as much as $1 trillion in boosted Gross domestic product. A longer discussion of these inquiry findings appeared on HBR.org. 
A New Model of Governance
Agency theory, promulgated past academic economists in the 1970s, is behind the idea that corporate managers should make shareholder value their principal concern, and that boards should ensure they do. The theory regards shareholders as owners of the corporation—but that raises a grave accountability problem: Shareholders have no legal duty to protect or serve the companies whose shares they ain; they are shielded by the doctrine of limited liability from legal responsibility for those companies' debts and misdeeds; they may buy and sell shares without brake and are required to disclose their identities only in certain circumstances; and they tend to exist physically and psychologically distant from the companies' activities.
Joseph Bower and Lynn Paine examine the agency-based model's foundations and flaws and its implications for companies earlier proposing an alternative model that would have at its cadre the wellness of the enterprise rather than virtually-term returns to its shareholders. Their model would refocus companies' attention to innovation, strategic renewal, and investment in the future.
The CEO View
David Pyott led Allergan during a hostile takeover try by Valeant Pharmaceuticals and Pershing Square Upper-case letter Management in 2014. He describes how he fended off their bid and what companies need to exercise to reorient themselves toward long-term growth.
The Board View
Barbara Hackman Franklin, an good in corporate governance, sees her field as a tripartite system of checks and balances. Activist shareholders, she says, are a new and worrying complication. Here she proposes some important changes boards demand to brand.
The Information
Five charts reveal that long-term-focused companies surpass their short-term-focused peers on several important financial measures and create significantly more than jobs.
The complete spotlight parcel is bachelor in a unmarried reprint.
A version of this article appeared in the May–June 2017 issue of Harvard Business Review.
sanfordalefoulader.blogspot.com
Source: https://hbr.org/2017/05/managing-for-the-long-term%23the-ceo-view-defending-a-good-company-from-bad-investors
0 Response to "Harvard Business Review Managing for the Long Term"
Post a Comment