The pressure put on CEOs to deliver quarterly results is greater than ever before. A 2014 global survey of more than 600 C-suite executives and directors, conducted by the non-profit Focusing Capital for the Long Term (FCLT), reported that two-thirds of those surveyed said pressure for short-term results had increased over the previous five years. And short-term thinking since that survey has not abated. In early April, Mark Zuckerberg testified before an angry Congress about Facebook’s customer data leaks, answering questions about placing short-term profits above protecting our personal information. The pharmaceutical company Valeant raised the price of Cuprimine — invented in 1956 and used to treat Wilson’s disease, a rare condition in which the body cannot process copper — from about $500 to about $24,000 for a 30-day supply, causing outrage from consumers. Wells Fargo bank is under scrutiny from regulators for creating false client accounts to boost short-term profits.
Why CEOs Should Push Back Against Short-Termism
Many CEOs argue that they have no choice but to cave to the demands of activists and others on Wall Street to boost profits quarter after quarter. But it doesn’t have to be that way. Research has found that the majority of CEOs say the pressure to deliver strong short-term financial performance stemmed from their own board and their own executive team. In other words, some of the short-term thinking we’re seeing is actually self-imposed, with CEOs simply getting in their own way. What makes the plague of short-term thinking somewhat puzzling is that 75% of the U.S. market is held by buy-and-hold investors who are actually interested in the long-term value of the companies in which they’ve invested. Given this, you could argue that CEOs shouldn’t be putting so much pressure on themselves to get strong short-term results. Going long is not an easy task, but it can be done. And the stakes are too high not to try.