Long term

WHY IT MATTERS

Long-term prosperity requires careful planning, and while we cannot predict the future, we can get an idea of the shape of things to come by looking at global forces of change – so called ‘megatrends’.

Good management involves managing for the short and long term simultaneously. In other words, it means being able to address current priorities without losing our ability to meet long-term objectives. In recent years, business and political decision making has been skewed towards short-term gain at the expense of long-term resilience. Yet this ability to focus on the long term is one of the key characteristics of true leadership. In the words of the ancient Greek proverb: “A society grows great when old men plant trees whose shade they know they will never sit in”.

Many of the challenges we face require leadership and long-term vision, such as the urgent renewal of the UK’s infrastructure (including energy, transport, water and ICT). The Kay Review found that short-termism in capital markets is increasing, with a trend away from an engaged, long-term investor and towards the anonymous, short-term trader.The average UK equity holding has fallen from eight years in the 1960s to seven months in 2007.

As a result, short-termism has become “a characteristic of corporate leadership, and may be characterised both as a tendency to under-investment, whether in physical assets or in intangibles such as product development, employee skills and reputation with customers, and as hyperactive behaviour by executives

whose corporate strategy focuses on restructuring, financial re-engineering or mergers and acquisitions at the expense of developing the fundamental operational capabilities of the business.”

What success looks like

  • Increased investment and R&D budgets to address long-term needs
  • Long-term impacts taken into account when making policy and business strategy decisions
  • Reduced national and household debt and increased long-term investments
  • Increased resilience to economic boom-and-bust cycles by increasing savings
  • Increased competitiveness as Britain develops the technologies and processes needed by our trading partners to develop their infrastructure
  • The UK rated a top location to do business in

WHAT IS IN IT FOR THE UK ECONOMY?

Ultimately, the transition to an economy that works can only happen if we take a long-term perspective. While there will be some difficult choices to make, the prize is substantial – a better future for Britain and its people.

Policy Exchange highlights, “Long-term infrastructure investment has significant advantages over attempts to boost consumption. The key difference from a macroeconomic perspective is that it creates assets to offset against the borrowing, while at the same time contributing to aggregate demand.

But it has an additional and, arguably, more important role: it addresses the productivity and competitiveness of the British economy by improving the energy, transport, communications and water systems which make a substantial contribution to the costs of consumers and businesses.”

WHAT ABOUT BUSINESS?

Long-term thinking provides critical business security. It enables business to identify potential opportunities, become more resilient and make informed investment decisions that will deliver value for years to come.

How can business help create a long-term economy?

  • Reward long-term performance in share options and fund performance remuneration
  • Improve communications with investors to reduce the financial community’s reliance on quarterly reporting as a proxy for performance

  • Build products that last longer and create new revenue streams through enhanced service offerings
  • Provide information to investors so they can build models that adequately account for long-term performance
  • Provide a clear long-term vision of success, such as this report, the World Business Council for Sustainable Development’s Vision 2050 or M&S’ sustainable business plan below

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

  • Create strong and continually evolving business policies that identify growth sectors and use a range of funding, fiscal and training interventions to help new enterprises expand
  • Ensure long-term planning is insulated from short-term political agendas or electoral terms, for instance through statutory requirements
  • Revise the way long-term benefits are valued in economic models, focusing on discount rates, accounting for natural capital and the forward costs associated with key resource use

  • Redefine fiduciary duty to strengthen long-term performance
  • Redefine corporate and asset manager incentives to reward long-term performance
  • Consider transaction fees to dissuade extreme short-term trading
  • Reduce obsolescence by extending warranty periods to reward greater product longevity

M&S’s long-term plan to make the business more sustainable

Source: Please download or view our Report online for a full list

 

 

Quote_Nausbaum

What's Happening