CEOs' long-term outlook good for company’s growth

Business executives standing together in a modern office.[Getty Images]

Chief executives should set aside short-term thinking in favour of a long haul to enhance growth.

This is the recommendation of a new study by research firms FCLT Global and McKinsey.

“Evidence shows that when executives consistently make decisions and investments with long-term objectives in mind, their companies generate more shareholder value, create more jobs, and contribute more to economic growth than peer firms that focus on the short-term,” noted the report.

Yet despite such enviable advantages, the study found that the long-term approach is still disdained in many circles, according to a survey of at least 500 executives globally. The study found that many top managers continue to feel pressure from shareholders and directors to meet near-term earnings targets at the expense of long-term strategies.

The McKinsey report says firms should create long-term value for investors only when they satisfy customers, engage and motivate employees, and maintain good relations with communities and regulators across extended time horizons.

The researchers also went ahead to identify some key behaviours that managers and boards can take to reorient their organisations toward long-term value creation.

According to the study, firms should invest sufficient capital and talent in large, risky initiatives to achieve a winning position just like Amazon and Microsoft.

The study notes that many executives believe that “smooth” earnings growth somehow contributes to value creation.

It also found that approaching management the long-term way is not a walk in the park. “Getting a company to manage for long-term perfor­mance requires considerable effort. CEOs and directors must take up new behaviours, abandon old ones, and empower managers to make decisions with long-term outcomes in mind,” indicates the report.

The report, however, points out that shifting to the long-term paradigm is not an option, despite constant temptation to go the alternative way.  

“Executives undeniably face real pressure to focus on and deliver satisfactory short-term results. However, they must weigh short-term demands against the flood of empirical evidence showing that companies that seek strong long-term results outperform companies that optimise short-term gains.”