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Meet FCLT Global CEO Sarah Williamson, the Future Fund's long-term thinker

James Thomson
James ThomsonColumnist

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It’s hard to imagine you could find anyone in business to admit they were a short-term thinker. Ask a chief executive or a chairman whether they focus on the long term or the short term and you’re sure to get a rapid response.

“We run this company for the next two decades, not for the next two months,” they’ll say, perhaps with a misty look in their eye.

But investors know it’s not true.

Sarah Williamson is the head of FCLT Global, an organisation that counts the Future Fund among its members.  Arsineh Houspian

Management teams and boards prioritise the short term over the long in all sorts of ways – cutting costs to meet guidance, delaying capital expenditure, boosting dividends instead of investing. Often it’s behaviour driven by the desires of investors – most of whom also claim to be long-term thinkers.

Sarah Williamson has seen it all before.

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“There’s good evidence that long-term companies outperform, there’s good evidence that long-term investors outperform, so why doesn’t everyone just do it? Because it’s hard.”

Williamson is the chief executive of FCLT Global (the acronym stands for Focusing Capital on the Long Term), a not-for-profit dedicated to promoting long-term thinking in the corporate sector.

Its member base reads like a who’s who of investors and companies, and includes Australia’s Future Fund, Singapore’s commodities giant Glencore, Unilever, HSBC, AT&T, BP and sovereign wealth funds from New Zealand, Malaysia, Singapore and the Netherlands.

Williamson says that at its heart, capitalism should be long term. At one end you have savers, typically hoping to build their money for a long-term goal, such as retirement. At the other end, you have managers who want to build businesses, enter a new market, or create a product – all long-term goals.

But money doesn’t move from savers to managers. It goes from the saver to the asset owner (such as a superannuation fund) to the asset manager and then through the public markets to the company.

“In that process both the long-term goal of the saver and the long-term needs of the management team gets lost,” Williamson says.

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Given the difficulties of putting a precise time frame on “long term”, Williamson describes long-term companies and investors as “future orientated”.

“The ones that are long term tend to be counter-cyclical. When bad things happen, they would buy an asset, or increase their business. Whereas the short-term players, when something bad happens, they tend to cut costs and retreat,” she says.

“Long-term companies and long-term investors can’t necessarily predict the future, but they understand they are planning for some future.

“Whereas short-term companies behave as if things are going to go on as they are – which is a bad assumption in most industries.”

For Williamson, the worst example of short-term thinking is when companies provide quarterly guidance – that is, they tell investors where earnings and revenue will be in 12 weeks’ time.

Outcome, not a driver

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While some companies are required to report quarterly in Australia, it is a requirement of all listed companies in the US.

But Williamson says there is no actual requirement for any company to provide guidance. But they do it anyway, encouraged by myths such as that it makes share prices less volatile and investors will place a premium on companies that provide it.

“There’s very good evidence that companies that issue quarterly guidance tend to attract short-term investors,” she says. “If you give investors the ability to play a quarter, they will.”

This is an important point. While there are all sorts of investors these days – passive, passive plus, active, pension funds, algorithmic traders – Williamson says companies do have the ability to shape their shareholder base by making it clear what the business is focusing on, and what leading indicators will foreshadow success.

That might not be a financial target, such as growing earnings at a certain rate over a certain time frame – that’s an outcome, not a driver, Williamson says.

Instead, a long-term company might choose to focus on items such as contract renewals, new patents earned or foot traffic.

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Companies also need to be aware of which investors they are listening to. Long-term investors tend to be quieter investors – noisy activists want quicker results.

Williamson certainly doesn’t pretend to have all the answers and to its credit FCLT Global takes a data-driven approach. One area she’s keen to dig into next is whether public company boards, whose emphasis is on compliance, are less long term than private boards, who tend to focus on strategy.

But her core message remains simple.

“No matter what kind of investor someone is, if they could take one step towards being more long term, that would have a huge impact on markets.”

The same surely applies to managers – even if they might have trouble admitting it.

James Thomson is senior Chanticleer columnist based in Melbourne. He was the Companies editor and editor of BRW Magazine. Connect with James on Twitter. Email James at j.thomson@afr.com

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