Breaking the shackles of short-termism

Posted by Florian Pantazi on 18/12/12

Until recently, sociologists trained in the tradition of Wright Mills have assumed western economic elites to be rather monolithic in nature. Not anymore. According to The Economist (“Taking the long view”, November 24th, 2012), CEO’s like Paul Polman of Unilever or management experts like Roger Martin, Dean of the Rotman School of Management of the University of Toronto, are attacking the basic principle of neoliberalism: the pursuit of shareholder value.

For Polman, the idea that global companies should primarily be concerned with maximising return to shareholders is out of date. Martin calls it a “crummy principle that is undermining American capitalism”. And Georg Kapsch from the Federation of Austrian Industries has urged the business world to abandon it.

In truth, the ill effects of this theory are there for all to see. In order to increase their pay, managers have resorted to manipulating share prices. The time average investors hold on to shares has decreased from 8 years in the 1960′s to only 4 months in 2010. More alarmingly, however, is the fact that listed companies have invested only 4 percent of their total assets in research and development, which compares poorly with the 10 percent or more invested by privately-owned companies.

Not surprisingly, smooth operators like Warren Buffett or giants like IBM systematically refuse to provide investors with short-term earnings guidance. Big French companies prefer to bribe investors with bonuses if they hang on to their shares for longer than a few months, and up-and-coming entrepreneurial corporations like Google and Zynga have put in place defences such as dual-class voting structures so as to avoid investor pressure for short-term results and cuts to their R & D budgets.

According to The Economist, the solution to short termism is not to abandon the principle of maximising shareholder value, but to follow the advice of business guru…Bill Clinton, who in Delhpian manner said “mend it, don’t end it”. Real experts, however, seem to favour the Chinese saying that if a principle doesn’t work anymore, it should be replaced with one that does.



Leave a Reply »»

To prove you're a person (not a spam script), type the security word shown in the picture.
Anti-Spam Image

Spotlight on Geopolitics rss

by Florian Pantazi. Author's profile : more.

  • Tags

  • Posts since Feb 2009

    December 2012
    M T W T F S S
    « Nov   Feb »
  • RSS Poverty in the Spotlight blog

    • Le pape François et "l'économie des retombées" May 18, 2014
      L'Eglise romano-catholique a toujours été concernée avec les aides pour les pauvres, leur éducation et leur bien-être. Les derniers trente ans, toutefois, la plus puissante église chrétienne du monde a pris congé de ce devoir millénaire, sous les pontificats des papes Jean Paul II et Benoît XVI. Pendant cette période, le problème de la pauvreté et les p […]
      Florian Pantazi
    • L'Europe à la traîne February 23, 2014
      Dans une enquête de 68 pages publiée récemment, la Croix Rouge Internationale révèle que, à la suite de la crise financière et en lien direct avec les politiques d'austérité, plus de 120 millions d'européens risquent de basculer dans la pauvreté et que 40 millions ne peuvent déjà pas manger à leur faim. La secrétaire générale de la Federation Inter […]
      Florian Pantazi
    • The fight against poverty in France February 15, 2014
      When right-wing politicians are talking poverty these days, they like to blame people down on their luck for their problems and stigmatize them as “lazy”, prone to cheat the social security system and more interested in getting handouts from the government than look for a job. This kind of political attitude is more widespread within the UMP, the great loser […]
      Florian Pantazi