Corteza prefrontal y sus conexiones con otras áreas cerebrales

A Price Waterhouse Cooper survey amongst 250 executives of FTSE100 companies

revealed, they would choose an option of a low return sooner (£250,000 tomorrow) than the option of a high return later (£450,000 in 3 years) (PwC, 2011; see also Haldane and Davies, 2011). Similarly, US executives would give up the chance of pursuing viable longer-term projects that created economic value for their firm in order to meet that quarter’s earnings expectations (Graham et al, 2005). Indeed, counterproductive strategies may even be followed where the chance of long-term benefits to the company are reduced in favour of short-term gain (Blair, 1995). Working towards the next results date was, therefore, the reality for many managers (see Millon, 2002).

But despite greater profitability often sidelined willingly by executives, they nevertheless felt heavily pressured.

‘The executives I work with speak openly about the market pressures for short-term perfor- mance. Though my perspective might be colored [by] my empathy toward them, I would say that to a person, they want to ensure that their companies do as well as possible in the long run. But they believe the capital markets place unrealistic and unproductive

1_{There are additional corroborating figures provided by Karlsson et al, 2008; Favaro et al, 2010; and Equilar, a} provider of board intelligence data.

2_{What has happened since is more complex. PWC, for example, provide figures showing a decline in UK} tenures: 8.3 years (2010), and 4.8 years (2017), against a global downturn to an average of 5 years. However, actual measurement is not clear-cut. A variety of factors affect results (eg depends on the form of departure – ie whether the executive was dismissed, retired, or changed industry position - the age of the executive, and the geographic location - ie Europe, US, UK or worldwide - as well as the metric or methodology used by a particular study) (see also Conference Board, 2017).

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constraints on them. Their eternal question is, How much can we invest in the long term before Wall Street starts agitating and making our lives so miserable that it threatens our ability to manage productively at all? For the better positioned of them, the answer is that they can invest nearly all that we would wish them to. But the CEOs who are already under threat or pressure, especially from activists, can invest almost nothing at all’

Martin, 2015

According to Bawden (2007), Henry Silverman, chairman of Realogy Property Services Group, ‘complained bitterly’ about shareholders being obsessed with the short-term.1 _His solution was to advocate taking companies private. But from many managers’ viewpoint, pursuing shareholder value in the short-term was a smoothing exercise, though one that dominated their behaviour often uncomfortably2. And the pressure was felt to be mounting to the extent it needed attention: ‘The balance between short-term accountability and long- term value creation has fallen out of balance; it is time to reconsider what can be done to restore the long-term to its proper place in corporate planning and strategy’ (Barton et al, 2016, p3).

3.3.1 Boards as the origin of short-termist perceptions: Boards may – with awareness or

not – support short-term distortions of managerial behaviour, according to Roe (2013, 2015). Managers might therefore: vigorously pursue good results during a limited tenure; push off poor results to a future time beyond their tenure; or fit in with the board culture, be it ‘dynamic’ or ‘lacklustre’. And where, if the latter, a board can cite any number of

misunderstood short-term market pressures on them for a failure to adapt to new business conditions. ‘It is not impossible that the short-termist view captures a rhetorical high ground

1_{Bawden, T. (2007). Surge in buyouts of quoted companies as hassled bosses line up to go private. The Times} (January 13).

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in the case for board autonomy by contrasting the positive connotation of patient long-term

capital against short-termist frenzy’ (Roe, 2013. p1005).

Claiming short-term pressures may also deflect problems faced in the running of the company, allowing managers to feel less accountable (Edmans, 2017). Yet managers could also fear for their jobs, or are persuaded by the board that if they do not engage in a short- term strategy shareholders will ‘move against them and have them removed through one of: pressure placed on the board; a resolution at a shareholders’ meeting; or as a result of a takeover’ (Keay, 2013). In agreeing tenure terms, suggests Edmans (2017), claiming they should not be evaluated for three years is an attempt by managers to address the problem by guaranteeing employment for that period. However futile the attempt might be, with

financial markets increasingly short-term focused it could be that managers are not entirely incorrect in trying to extend their employment time frame.1

Similarly, in pursuing shareholder primacy as a route to achieving their corporate objective, boards may misguidedly believe that managing for the short-term is the

expectation (CLR, 1999; Millon, 2002; see also Mitchell, 2001 on the ethic of stock price

maximization). As a fixated position, however, this belief may in reality be inconsistent with

shareholder primacy, which specifies no specific time frame for companies to achieve results (Millon, 2002).

If companies feel compelled to act based on a short-term horizon one possible cause is the influence of investment consultants, who in turn advise the major institutional

shareholders (Barton et al, 2016). The company board then takes the brunt of the effect, as

Barton (2011) highlighted. This occurs despite those shareholders agreeing they were a cause of short-termism (MORI, 2004).2

1_{See eg Rappaport, 2005; Tonello, 2006; Aspen Institute, 2009; Alan Greenspan, Francis Boyer Lecture, The} American Enterprise Institute for Public Policy Research, Washington DC, December 5, 1996..

http://www.aei.org/publication/the-challenge-of-central-banking-in-a-democratic-society-2/; Keay, 2013. 2_{MORI, 2004, NAPF/IMA Short-Termism Study Report.}

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Hence, while managers may blame market pressures for short-termism, in reality they are subject to a variety of board pressures affecting them (eg Hayes and Schaefer, 2009; Cable and Vermeulen, 2016).

Business leaders, however, realize that short-termist pressures affect them and freely admit they would prefer to use longer strategic planning horizon. But, with an internal corporate initiation through metric use and a subsequent response of managers to changed investor conditions, they are in a cycle of self-reinforcing perceptions (Barton et al, 2014). Indeed, a

negative feedback loop (Barton, 2016).

Within that context, the impetus for executive compensation may not always be from executives. With a short-term outlook, stressing share price performance, boards could have an embedded pay-for-performance culture. Their actions may then purposely create wage

distortion through the incentives they offer. With the market a keen observer of corporate

activities a CEO’s wage may be over-inflated to temporarily move market perception skyward with respect to the company’s current value and future prospects (see Hayes and Schaefer, 2009). The research carried out by these investigators addresses what is termed the Lake Wobegon Effect, a behavioural disposition where no company wants to admit to having a CEO who is below par, and so no company lets its CEO's compensation contract fall below market expectations. Hence, having an upwardly distorted compensation contract is a signal to the market to expect good things!

The pressure from boards is undoubtedly a strong effect. And it is progressive as well. Almost two-thirds of managers said the pressure to generate short-term results had increased over the previous five years. Yet at the same time nearly 90 percent stated that a longer time horizon in business decisions would have a positive effect on corporate performance (Barton and Wiseman, 2014). Managers are, it seems, trapped between knowing what is good for the

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company and doing what is good for the company; and with any pressure from boards apparently tracking down the line onto them

3.3.2 Market pressures on managerial behaviour: A market in which discount rates1

appear to favour the short-term for corporate investment does not help managers to choose the appropriate time horizon to use. There is excess discounting – that favours the short- term use of capital – and which has increased over time (Haldane and Davies, 2011). For companies it can fuel a tendency for share ‘buybacks’2 as the best use of funds. Buybacks, according to Plender (2015), have risen to pre-crisis levels.

Similarly, since 1980 dividend payout ratios3 have generally been in an upward trend, according to Haldane (2015). And with shorter equity holding periods and higher discount rates, there is an augmentation of any short-termist outlook (see also Kay, 2012).

For many, these facts reflect a move of the market system towards producing short-term pressures on companies. Indeed, noted Haldane (2015), ‘over the past decade the equity market no longer appears to have been a source of net new financing to the UK corporate sector… Total payouts to shareholders, both dividends and buy-backs, are also back to their pre-crisis peaks, totalling almost $1 trillion in the US, and £100 billion in the UK, in 2014’. However, these short-termist notions implied, argued Kaplan (2017), the money

disappeared from shareholders and reinvestment never occurred. Indeed, without long-term projects to invest in, share buybacks remain an important option. This is a view that sees

1_{The generally accepted belief is that companies look to buy back their own shares to increase short-term} market prices, irrespective of the long-term impact. For example, where they are likely to miss their Earnings- Per-Share target (see eg Lazonick, 2014; Edmans, 2017).

2_{The use of discount rates is for assessing investment projects against other potential sources of value} generation. And discounts are 5 percent to 10 percent greater than would be expected at one-year time horizons, and are therefore a significant barrier to longer term investment horizons, and particularly so when accumulated and compounded (Haldane, 2015).

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How short-termism is not the problem commonly believed