Short-termism: Shift Our Perspective to Change Our Outcomes

A few weeks ago, at the Net Impact Conference, the concept of “short-termism” made its way in to more than a handful of panel discussions and key note presentations. Which has caused my own contemplation of this term as of late; its root cause, the factors that perpetuate it, potential antidotes for it.

It’s not hard to understand how this perspective permeates our day-to-day lives. The instant gratification our society has grown accustomed to is the embodiment of individual short-termism. Cause, effect. Want, get. Do, see results. On demand. Delivery everything. Instant downloads… Technology has afforded us tremendous benefits over the last decade, but I’m not sure this is one of them.

Beyond the ways in which short-termism affects us as singular agents, there is a significant impact it has on the way businesses are being run. According to a working paper published by HBS and written by Francois Brochet, Maria Loumioti, and George Serafeim (March, 2012): “In recent decades, commentators have argued that many corporations exhibit short-termism, a tendency to take actions that maximize short-term earnings and stock prices rather than the long-term value of the corporation." When the outlook of the investment and financial communities is focused on the idea of almost immediate returns, there is an implication for the very way companies structure themselves. If incentives exist for executives based on quarterly – or even bi-yearly – performance, what kind of message does that send? My interpretation would be something along the lines of “fix things now, however un-sustainable your solution, so that our year-end earnings allow us all to get our bonuses”. Now honestly, how much change can be expected to transpire in time windows that span 3 to 6 months? A quarter is twelve weeks! But if your bonus or promotion is based on your performance during Q2, it’s no wonder people shorten their focus and pour all their energy into the band-aids that will offer quick – almost certainly unsustainable – fixes. It’s not even really their fault.

This problem is clearly deep and systemic, and arguably hindering the way our economy moves forward. I won’t pretend to have anything akin to a comprehensive answer (full disclosure: my understanding of financial institutions and the investment sector is admittedly quite poor). However, I do see an opportunity for the startup and social entrepreneur sector to provide at least a partial solution (and this is an industry I am much more familiar with).

I believe our current crop of social innovators is uniquely poised to challenge these binding parameters of short-termism. From the onset, they have an opportunity to create business plans and models that take into account 10 and 15 year-long roadmaps. I’m not suggesting that there shouldn’t be benchmarks, and that incremental results along the way shouldn’t be expected. But I am proffering that it might be ok for some to say “my idea/product/service will achieve its ultimate goal [insert “maximum return”, depending on your perspective] within 12 years of launch”. Especially in the sustainability space, systemic changes aren’t made quickly (at least not if they’re made well). And that’s ok. It should be acceptable to take a bit longer to get it right. I’m not opposed to quick iterations, especially in the startup space, but I do think that the expectations for enduring change should be mapped out on a longer timeline. The structure, the evaluation, and the eventual success of this kind of company would look very different than how many “5ish years to IPO” startups do now. It would require the VC community to consider the longevity of their investments, while encouraging new companies to consider their long-term strategy. Again, I’m not saying that shifts and changes in direction can’t occur, but if we focus on a benefit that is a longer way out, we might, by design, start creating more sustainable models from the get go.  

Perhaps the steps towards this are small (almost surely). And maybe they even start on the individual level. I would actually challenge myself (and any others, if interested) to try taking the long view of some of our usually cavalier decisions. So in the spirit of baby steps: I vow to not be upset if I can’t lose those 5 pounds in one week (instead, give myself a month and a half, and then really keep it off). I vow not take a handful of small, weekend getaways for the next two years so that I can afford a big adventure in three. I vow to invest in my career development so that I can land in a role that I’m best suited for, even if that’s 5 years off. I don’t pretend that any of this sounds easy (or even desirable) but there is something rewarding in the thought of putting in the time to yield a substantial benefit down the road.

Because here’s the bottom line: If we keep operating within systems that demand quick returns and fast outputs, it’s going to be a long time until we see real, lasting change.