Taking a long-term approach in business leads to superior performance.
Companies that orient themselves around a long-term time horizon while also delivering against short-term objectives have been shown to outperform their peers on several key business measures, including revenue, earnings, economic profit, market capitalization and job creation. These companies were hit hard during the last major economic downturn—as were most businesses—but saw a higher-than-average rebound after markets recovered.
According to one economic analysis, had short-term-oriented companies behaved more like long-term-oriented ones, the global economy would have created an additional $1.5 trillion in returns on invested capital in the years following the Great Recession.
While the benefit of long-termism is clear, the path to getting there is not. By all accounts, and for a variety of reasons, taking a long-term orientation in business can be difficult, especially for executives. But if the board of directors is committed to taking the long-view, there are a number of specific steps to they can take to get there, beginning with asking a key set of questions:.
As a board, are we satisfied with our company’s performance?
Is the company being fully valued in the market?
Is the board playing an appropriate role in creating shareholder value?
Read the full article in the Harvard Law School Forum on Corporate Governance.