TORONTO, ONTARIO -- (Marketwired) -- 05/22/13 -- Speaking at the Institute of Corporate Directors annual conference, Mark Wiseman (President and CEO, CPPIB) and Dominic Barton (Global Managing Director, McKinsey & Company) called on business leaders to focus their thinking and actions on long-term value creation.
Announcing a joint initiative, entitled "Focusing Capital on the Long Term", Barton and Wiseman described short-termism as a central concern in today's global economy and discussed the pivotal role that corporate directors and institutional investors can take to foster long-term thinking and action.
As part of Focusing Capital on the Long Term, CPPIB and McKinsey conducted an international survey of corporate directors and CEOs, in order to understand their views on the need for long-term value creation and to identify the causes and risks of short-termism in the markets and in business:
-- Sixty-three percent of business leaders indicated the pressure on their senior executives to demonstrate strong short-term financial performance has increased in the past five years.-- Seventy-nine percent of directors and senior executives said they felt the most pressure to demonstrate strong financial performance over a time period of less than 2 years. Only 7% said they felt pressure to deliver strong financial performance over a horizon of 5 or more years.-- However, respondents identified innovation and strong financial returns as the top two benefits their company would realize if their senior executives took a longer-term view to business decisions.-- Yet, almost half of respondents (44%) said that their company's management team currently uses a primary time horizon of less than 3 years when they conduct a formal review of corporate strategy. Seventy- three percent said this primary time horizon should be more than 3 years and 11% said the horizon should be more than 10 years. (i)
Recognizing that time horizons vary by industry and asset type, Barton and Wiseman introduced a new definition for long-term to set a common foundation for the initiative's work: Long-term thinking goes beyond a product cycle, beyond the average tenure of directors or the CEO, and beyond a typical investment cycle.
Dominic Barton, Global Managing Director of McKinsey & Company, said:
"There is strong evidence, across the value chain, that long-term thinking creates enduring benefits for companies, their investors, and society while short-term thinking destroys value. Our aim is to move quickly to action to address the issue of short-termism and develop practical tools and approaches to help institutional investors and corporate directors execute long-term strategies."
Speaking about the challenge in moving to long-term mindsets, Mark Wiseman, CEO of CPPIB, said:
"We recognize the scale of the challenge in changing short-term attitudes and behaviours that have become all too ingrained in business, investment and society. We are not looking at an immediate fix to the problem of short-termism. This will take time, persistence and commitment from all involved. This initiative is focused on creating a roadmap for change."