Ample evidence shows that when executives consistently make decisions and investments with long-term objectives in mind, their companies generate more shareholder value, create more jobs, and contribute more to economic growth than do peer companies that focus on the short term. Addressing the interests of employees, customers, and other stakeholders also brings about better long-term performance. The future, it seems, should belong to leaders who have a long-term orientation and accept the importance of treating various stakeholders fairly.
Nevertheless, our research shows that behavior geared toward short-term benefits has risen in recent years. In a recent survey conducted by FCLTGlobal and McKinsey, executives say they continue to feel pressure from shareholders and directors to meet their near-term earnings targets at the expense of strategies designed for the long term. Managers say they believe their CEOs would redirect capital and other resources, such as talent, away from strategic initiatives just to meet short-term financial goals.
Executives may continue to focus on short-term results because adopting a long-term orientation can be challenging. While previous studies have established that long-term companies perform better than others in the long run, they haven’t identified the management behaviors that enable that success. A new report, Corporate long-term behaviors: How CEOs and boards drive sustained value creation, represents our attempt to fill that gap. In it, we show that long-term companies adhere to certain management behaviors, and we recommend actions that CEOs and boards can take to institute those behaviors at their companies.
Getting a company to manage for long-term performance requires considerable effort. CEOs and directors must take up new behaviors, abandon old ones, and empower managers to make decisions with long-term outcomes in mind. Here, we outline some practical steps that boards and CEOs can take to promote long-term behaviors.
A board of directors ordinarily has a well-established role: thinking about the future of a company, approving its strategy, reviewing its performance, and evaluating management. However, few boards spend adequate time on assessing the strategies and investment plans of the businesses they direct. Boards can help orient management toward the long term in three ways:
CEOs, supported by their top teams, are ultimately responsible for creating long-term orientations in their companies. An important part of that responsibility is serving as role models for the rest of their management teams when making big decisions. CEOs can also promote a long-term orientation among managers and employees by applying their influence and authority in four ways:
Executives undeniably face real pressure to focus on and deliver satisfactory short-term results. However, they should weigh short-term demands against two other noteworthy considerations. The first is the strong empirical evidence showing that companies that seek strong long-term results outperform companies that optimize short-term results. The second is the long-term interests of both investors and other stakeholders.
Business leaders who choose to prioritize long-term value creation must take on the responsibility of reorienting their companies accordingly. By understanding which management behaviors distinguish successful long-term companies and expressly fostering those behaviors, CEOs and boards can help their companies produce value for stakeholders over the long run.
This content was originally published here.