Focusing Capital On The Long Term: Are We There Yet?

“Until large asset owners radically change their approach, other key players (such as asset managers, corporate boards, and company executives) will probably remain trapped in value-destroying short-termism. But by accepting the opportunity and responsibility to be leaders who act in the best interests of individual savers, large asset owners can be a powerful force for instituting the kind of balanced, long-term capitalism that ultimately benefits everyone.”

Dominic Barton, former Global Managing Director, McKinsey&CoMark Wiseman, former CEO, CPP Investments

A Widely-Read HBR Article

The quote above comes from a widely-read and cited 2014 Harvard Business Review article titled "Focusing Capital on the Long Term”. In the article, Barton and Wiseman cited research with two important findings from a survey of more than 1,000 corporate board members and C-suite executives:

1. 63% of respondents said pressure to demonstrate short-term financial performance had increased over the previous five years.
2. 86% believed that using a longer time horizon to make business decisions would positively affect corporate performance in a number of ways, including increasing innovation and strengthening financial returns.

What could asset owners such as pension and sovereign wealth funds do to lengthen investment time horizons? Barton and Wiseman suggested four “proven, practical steps”:

1. Clearly define the investment organization’s long-term objectives and risk appetite.
2. Unlock value through engagement and active ownership.
3. Demand long-term metrics to inform decisions.
4. Structure institutional governance to support a long-term approach.

Inspired by the Barton-Wiseman article, I followed up with my own article in the Fall 2014 edition of the Rotman International Journal of Pension Management titled “The Case for Long-Termism”. It supported the Barton-Wiseman message in four important ways.