Publications

 

Short‐termism: Insights from business leaders

23/01/14
The pressure on business leaders to deliver financial results in the short term has
increased considerably since the economic crisis, according to a survey jointly
commissioned by McKinsey & Company and Canada Pension Plan Investment Board
(CPPIB)1 on time horizons in executive decision making.2 More than three‐quarters (79
percent) of the respondents told us that the time frame in which they personally felt
the most pressure to deliver financial results was two years or less. And while 73
percent said that their companies should look at least three years ahead in their
strategic planning, only just over half said their management teams actually did so.
In this survey, we asked senior executives and board directors about the ways they
balance short‐ and long‐term priorities, the time frames they use to decide on strategy
and investments, and the potential benefits from taking a longer‐term approach to
decisions.

We found that the respondents, all C‐level executives or board members,3 most often
cited their own executive teams and boards (rather than investors, analysts, and
others outside the company) as the greatest sources of pressure for short‐term
performance. They most frequently attributed the increase in this pressure to
economic uncertainty. In addition, they said the pressure was affecting decisions on a
range of actions – from undertaking M&A to managing externalities – that could benefit their companies in the long run. The largest share of respondents reported
that the most helpful ways to reorient their companies toward a long‐term view would
be to create strategy‐focused board committees and to ensure that boards spent most
of their time on long‐term issues. Encouragingly, these two actions were also the ones
that business leaders said their companies could most easily implement today.