Managing for the Long Term
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Publication Date:
May 01, 2017
In this issue’s Spotlight we examine how a focus on maximizing shareholder value–which leads to short-termism for management and boards–can threaten companies’ health and financial performance. In “The Error at the Heart of Corporate Leadership,” Joseph Bower and Lynn Paine examine the foundations and flaws of agency theory, which views shareholders as the “owners” of a company and is behind the current widespread idea that corporate managers should make shareholder value their primary concern. The authors propose an alternative, “company-centered” model that would have at its core the health of the enterprise instead. Their model would return companies’ attention to innovation, strategic renewal, and investment in the future. In “The CEO View: Defending a Good Company from Bad Investors,” David Pyott, former chief of Allergan, describes how he fended off a hostile takeover bid and what companies need to do to reorient themselves toward long-term growth. In “The Board View: Directors Must Balance All Interests,” Barbara Hackman Franklin, an expert in corporate governance, proposes important changes boards need to make to deal with the new and worrying complication of activist shareholders. Finally, in “The Data: Where Long-Termism Pays Off,” five charts reveal how long-term-focused companies surpass their short-term-focused peers on several important financial measures and create significantly more jobs.
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Managing for the Long Term
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