How can public company CEOs and boards effectively balance short and long term performance in the face of pressures to increase stock price performance over the short term?
Doug Chia explains in this Conference Board Insight Minute: What can CHROs do about short-termism in their organizations?
Managers of public companies are under constant pressure to meet quarterly guidance and maximize profits, often at the expense of future profitability. Business leaders must act to ensure that the drive for short-term performance doesn’t come at the expense of sustainable value creation. Through their knowledge of the business and its human capital, CHROs are in a unique position to help senior management and boards of directors drive performance through HR- and talent-related policies that support the company’s long-term strategy. Tactics for driving performance include strategic workforce planning, forward-thinking executive compensation design, and communication to and engagement of internal stakeholders in long-term strategy.
CFOs can play a critical role
Public companies are dying faster than ever, and these contracting corporate life spans are, on average, diminishing long-term value creation, making it more important than ever that business leaders act to ensure that the drive for short-term performance doesn’t come at the expense of sustainable value creation. CFOs can play a critical role in developing and driving a strategy that balances long-term value creation with short-term fiscal concerns and ensuring that the company’s long-term strategy and performance are communicated effectively to all stakeholders.
Chief legal officers could help balance the demands for short- and longer-term performance
Two trends are in line with the expected impact of short-termism at a public company level:
- a reduction in business investment and
- an increase in payouts to shareholders.
Governance experts, economists, and shareholders themselves are raising concerns with these trends, saying many companies are ransoming future prosperity for higher returns today.
The Conference Board Governance Center, which has been studying this issue for more than a decade, believes the future strength of public companies rests on a return to a more balanced approach.
Chief legal officers are in a unique position to review the governance structures of their companies to determine whether any changes could better balance the demands for short- and longer-term performance.
The Conference Board, founded in 1916, is a global, independent business membership and research association that provides the world's leading organizations with the practical knowledge they need to improve their performance and better serve society.
Connect with Conference Board experts on this topic
Attend an in-person briefing, presented by the researcher