By John Paluszek, Senior Counsel, Ketchum
From the December 2006 issue of BSR Weekly (www.bsr.org).
It's just possible that attacks on financial "short-termism" are heading toward critical mass, which is good news for CSR leaders. Here is a small arsenal for the next time your CFO or CEO challenges you to justify the value of your organization's corporate social responsibility (CSR) commitment: "the principal focus of our financial system must shift from the counterproductive short-term speculation of the recent era toward the type of long-term investment that produces an optimal return on capital and creates wealth for investors."
I wish I had said that. But it's much more important that John C. Bogle, founder and former CEO of the Vanguard Group Inc. mutual fund group, said it (in his 2005 book The Battle for the Soul of Capitalism).
It's important because the CSR business model is based on long-term corporate strategy and rarely generates the quick, measurable results demanded by quarterly-earnings addicts. But it is good business, and smart business, not only for the "value investor" but for all corporate stakeholders and for society.
A formidable array of forces support short-termism, ranging from the mainstream financial community to the instant gratification gene implanted in society's DNA a generation ago. But Margaret Mead's much-abused aphorism about the power of "a small group of thoughtful, committed people" may be at work here in beginning to undermine short-termism.
Except that it's no longer "a small group." Nor is it inconsequential.
Attacks on Short-Termism from "Outside" and "Inside"
It is difficult to ignore what's happening within capitalism on CSR and long-term success. Individual corporations such as The Coca-Cola Co., Gillette (owned by The Procter & Gamble Co.) and The Washington Post Co. have reportedly ceased providing quarterly earnings guidance in favor of annual projections. In addition, there are a number of more systemic current performances.
Enter the prestigious champion of capitalism, The Business Roundtable (TBR). In July 2006, TBR's Institute for Corporate Ethics co-sponsored a symposium called "Breaking the Short Term Cycle: How Corporate Leaders, Asset Managers, Investors and Analysts Can Refocus on Long-Term Value" that examined "the benefits of long-term thinking and the costs of short-term thinking." Just a few months prior, TBR established S.E.E. Change, an initiative encouraging members of TBR to "adopt business strategies and projects that measurably improve Society, the Environment and the Economy -- now and for future generations."
Not to be outdone, The Conference Board (TCB) issued a report on its London Summit earlier this year titled "Revisiting Stock Market Short-Termism." The report concluded that "Market short-termism undermines confidence in the soundness of the underlying economy, favors opacity on strategic goals and encourages opportunistic behaviors by a few to the detriment of the many."
The United Nations Global Compact, a several-year veteran of this scene, released a study this fall in association with the International Finance Corporation/World Bank Group and Switzerland's Federal Department of Foreign Affairs, called "Investing for Long-Term Value," that assessed integration of environmental, social and governance value drivers into asset management and financial research. The report served as a follow-up to "Who Cares, Wins," the Compact's 2004 study that recommended that environmental, social and governance issues be more fully integrated into analysis, asset management and securities brokerage. This spring's Principles for Responsible Investment, released by the Compact in association with the UNEP Financial Initiative, are the first global charter for responsible investment and have been endorsed by 90 international institutional investors and asset managers representing U.S.$5 trillion (yes, that's trillion).
And among its "Breakthrough Ideas for 2006," Harvard Business Review (February 2006) presented "A Critical Mass for the Long Term" by Judith Samuelson and Claire Preisser of the Aspen Institute's Business and Society Program. Some relevant excerpts:
"The harmful effects of short-term thinking aren't limited to companies' investment decisions. Calling for extended corporate time horizons, The Conference Board's Blue Ribbon Commission on Restoring Public Trust blamed 'short-termism' for contributing to corporate malfeasance. It also creates a formidable obstacle to corporate involvement in social problems like global warming.
"IBM (Corp.) recently took the lead by issuing a companion 'prospectus' to its annual report -- not an offer of stock, but an in-depth discussion of the company's business model, talent base, management systems and quality of customer relationships, with an eye toward long-term prospects."
"Not New Ideals for Capitalism"
With a bit of symmetry, John Bogle gets the last word on long-termism in the service of CSR (again from his Battle for the Soul of Capitalism):
"Of course the successful enterprises that endure must generate profits for their owners. They will do that best when they take into account not only the interests of their stockholders but the interests of their customers, their employees and their communities, and the interests of our society. These are not new ideals for capitalism -- hear Adam Smith: "He is certainly not a good citizen who does not wish to promote, by every means of his power, the welfare of the whole society of his fellow citizens."
John Paluszek is the author of the books Organizing for Corporate Social Responsibility and Will the Corporation Survive? He is Senior Counsel, Corporate Responsibility, at Ketchum in New York.
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