Sustainability 101: How Taking a Short View Can Leave You Short-changed
Jan 24, 2019
As we know so well, business today moves at the speed of a click. The fiber-optic networks that link the world’s computers allow us to conduct transactions in an instant. The downside? It has created unrealistic expectations of return. Boards and shareholders come to expect faster results: meet the quarterly numbers and you’ll do fine. Miss them and…well, just don’t miss them.
There’s so much pressure to drive to results for the immediate future (“Do it now, and you’ll get your money”) that we’ve lost sight of the value of acting for tomorrow.
Dov Seidman, a consultant and the author of How: Why How We Do Anything Means Everything…in Business (and in Life), believes this pressure is causing more executives to make decisions based on situational values—what will help them today—rather than sustainable ones—what will help their company down the road.
Take private equity. Today, many investors pour millions into a start-up but demand a return within 36 months. Those investors are not in the company to invest in the future; they’re in it for a quick profit, and that’s where their allegiance ends.
Larger corporations can fall victim to the same nearsightedness. I’ve known at least two CEOs who have lost their jobs because they’ve stood up to their boards and said, “I need time to invest in research for the longer term.” Those investments would have required patience on the part of the directors and shareholders, and in those cases, no one was willing to wait.
I recall working for a Fortune 100 company years ago when, realizing we weren’t going to meet our fourth-quarter earnings goals, a senior executive told me we were going to have to “stock” the wholesalers at year-end in order to make our numbers. I told him I wouldn’t do it. He was furious, and the following quarter, I didn’t get the promotion I had been promised.
But here’s the epilogue: that executive was eventually pulled from his job. Although I got hurt in the short term, in the longer term I did well by holding on to values I thought were important and respecting the relationships we had nurtured with our supply chain. Our management research still clearly demonstrates that when you insist on doing the right thing, you’re going to get a positive return—eventually.
In How, Seidman suggests that instead of pursuing success directly, executives should govern based on a set of enduring values: trust, honesty, integrity, consistency, and transparency. You may be delayed in building a single, maximally profitable company, but you’ll create a stronger institution that will survive in the long run.
Seidman and economist Thomas Friedman sat down at the 92nd Street Y in New York City a few months ago to discuss why executives should take a longer-term view. “As a country, as individuals, and as companies, if we do things in order to make a difference, we can make money,” Seidman said. “But if we do them in order to make money, they will elude us.”
You don’t have look far beyond the headlines to see his point. Take Raj Rajaratnam, founder of the Galleon Group, who was recently charged in what prosecutors have called the largest hedge fund insider trader case in the country. His fund did nothing to promote long-term wealth. Instead, he slashed and burned, and now he’s paying the price.
“What no one understands,” continued Seidman, “is that you can’t manage your reputation in this world. You can only earn it, one good behavior, at a time.”
One entrepreneur who exemplifies that attitude is Ingvar Kamprad, the founder of the iconic furniture store IKEA. For him, he said, “The question is whether, as an entrepreneur, I can combine…a profit-making business with a lasting human social vision.”
Kamprad began by laying out a set of long-term company values, including low prices and design with wide appeal and communicating that vision to his employees. “Studies show that people who work for IKEA believe that they really are working for a better society and that they therefore like working for IKEA,” he said. “They believe that in their daily lives they are contributing to a better world.”
Have those sustainable values paid off? In 2009, Forbes ranked Kamprad the wealthiest person in Europe and the fifth-richest in the world.
You do the math.