Por lo tanto, los pacientes con daño en la CPV carecen de la capacidad

employees, customers or any other important constituency, should be given more consideration in corporate governance, point to ‘pernicious short-termism’ in support of their contention (Roe, 2013). Along with a perceived over-incentivizing of managers and senior executives it is a believable viewpoint though in many ways unsupported

(Mauboussin and Callahan, 2015). In this context, an explanation of events is often that of an increasing financialization of corporate activity (see Froud et al, 2006). But it is an interpretation harking back to the 1990s and academic concerns on lack of capital

investment, reduced manufacturing, asset-stripping and downsizing, rather than any later ostensible causes leading up to the 2008 Crash – such as the collapse of the housing market or poorly constructed financial products, or indeed the stressing of short-termism as a rationale. Whether the notion is therefore applicable to today’s capital markets and their relationship to companies is problematic (Haslam, 2010). Although, this perhaps has applicability in our time, post-Crash, too. For example, how when talking about

competition, change, or global markets, corporate rhetoric about shareholder value may still be employed at the expense of value that could be usefully generated by stakeholders. Indeed the terms of the ‘financialization debate’ may simply change over time, with termism often now an easier target.

But in addressing stakeholder interests, noted Roe (2013), it is important to recognize that these interests can be long-term and they can be short-term. Tracking into termism,

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therefore, it is feasible that critics may have misconceived the distinction between shareholder value and stakeholder value, as different perceptions of corporate value.

Shareholder primacy as a model, for example, does not actually say anything about the time frame within which companies need to act (Millon, 2002). This is a distinction particularly relevant to those who connect short-termism with an excessive favouring by executives of shareholder and market concerns (see Froud et al, 2006; Kaplan, 2017), as it is not primacy that is important so much as how termism is handled in that context. And though Jack Welch, the former CEO of GE, may have been quick to famously comment that

‘shareholder value is the dumbest idea in the world!’ after he had left the company (see Guerrera, 2009), in reality shareholder value maximization could in fact be understood as a long-term approach. In pursuit of this aim, managers can really only affect strategy – and only indirectly share prices – implementation of which takes time (Beinhocker, 2006; Tse, 2011). This is similar to the argument put forward by Mauboussin (2011) where shareholder value maximization is itself a worthwhile goal though often misconceived as such. Yet where wealth maximization is fundamentally a long-term objective, not short-term, as Bistrova and Lace (2012) highlighted, commitment to the very ideal of long-termism alongside sustainability is what counts.

If any confusion is evident, it may be a result of the conundrum being far less about the choice of primacy perspective taken, and attempting to draw distinctions, than that the way termism works is equally applicable to shareholder and stakeholder perspectives. In the push to stress long-termism – as well as to link shareholder primacy with short-termism – it is easy to forget this. The point is a vital one, as it means if future stakeholder interests are under-specified in some manner, similar results can occur of which shareholder theory is accused. In other words, long-term stakeholder value destroyed by less R&D or innovation or overly ambitious attempts to redistribute any economic surplus to a variety of stakeholder

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interests (Danielson et al, 2008). Although accepting that short-term and long-term

strategies are useful yet differ does not negate that a corporate strategic decision still has to be made concerning whether it should be short-term or long-term horizon objectives that need to be predominantly set (Hu, 1990) or indeed what length to set for each.

Nevertheless, whichever the primacy, too much short-termism can produce a variety of outcomes, it seems, a few of which are:

• A tendency to work towards only the next earnings report – with a

likelihood of only just beating analysts’ forecasts and/or reporting very small positive earnings • Undue risk taking to maximize

short-term earnings – financial institutions may invest in assets with hidden risk or take on excessive debt just to increase their short-term profits (see Dallas, 2012) • Increased share buybacks • Share price volatility

• Deterioration of firms’

competitiveness and/or performance • A focus on dividends at the expense

of long-term capital investment or R&D

• Reduction in investment expenditures

• Reduced communication with stakeholders

• Increased systemic risk within industry and economy

• Reduced long-term potential of the entire economy

(Sources: EY, 2014; Brochet et al, 2015)

Clearly excessive short-termism comes with dire consequences for corporate success and value creation. And this was something recognized prior to the 2008 Crash not only by the UK legislative and regulatory bodies attempting to put a new corporate governance framework in place (eg Combined Code, 1998; CA2006) but also by other observers1_. While more recently, Larry Fink, the CEO of BlackRock, one of the leading money

1_{See eg Twentieth Century Fund, 1992, on speculation and market volatility; Cassidy, 2002, on executive} abuses and the supporting of a greed-driven corporate culture.

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managers, wrote that ‘the effects of the short-termist phenomenon are troubling . . . more

and more corporate leaders have responded with actions that can deliver immediate returns

to shareholders, such as buybacks or dividend increases, while underinvesting in

innovation, skilled workforces or essential capital expenditures necessary to sustain long-

term growth’ (Fink, 2015).

Short-termism was therefore in the spotlight before and after the Crash, where the assumption was that it had to be a bad approach followed at the expense of a long-term perspective, and with an industry-wide prevalence. Short-termism required eradicating was the thinking, as it was the culprit across the economy for a lack of solid corporate growth in value. In addressing concerns, John Kay, for example, was charged by the UK Secretary of State for Business, Innovation and Skills (BIS), with examining the relationship between equity markets and long-term corporate decision-making (Kay, 2012). In America, the concept had similarly gained the notice of politicians, though with starker overtones. Joe Biden portrayed it as ‘one of the greatest threats to America’s enduring prosperity’ (Biden, 2016), while Hillary Clinton proposed tax changes to promote long-term investing (see Pethokoukis, 2015a). Clinton’s sentiments mirrored those of the Brookings Institute (Galston and Kamarck, 2015), and the Democrat leaning Aspen institute who wrote:

‘We believe a healthy society requires healthy and responsible companies that effectively pursue long-term goals. Yet in recent years, boards, managers, shareholders with varying agendas, and regulators, all, to one degree or another, have allowed short-term

considerations to overwhelm the desirable long-term growth and sustainable profit objectives of the corporation.’

Moreover, with the overriding academic and political propulsive forces in place, in the wake of the financial crisis the likelihood was that an already disenchanted public was

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galvanized to a new perception of predominating business practices. And despite the complexity of the issues, could have led to unsupported generalized views that all short- termism is bad and that all companies that display short-termist practices are evil, or that ‘all executives are crooks who sacrifice long-term value for short-term profits’ (Edmans, 2017). A focus on the terrible examples of fraud or abuse, where the media loves a good story, certainly did not help and only served to add to the perception (see Chapter 2, Fig 2.7). As Edmans further noted, a negative view of short-termism of this nature can play into

populism.

The reality, however, was that the issue of short-termism had been recognized and considered inconclusive long before the financial crisis ever got started (see Laverty, 1996). Furthermore, since the Crash any discussion on short-termism had tended to be

characterized as a one-sided debate (Mauboussin and Callahan, 2015; see also Pozen, 2014). Nevertheless, even if such research was an accurate reflection of the intricacies and

limitations of short-termist thinking, the views represented in those works appear to have been in the minority.