The debate about whether U.S. public companies are afflicted by short-termism rather than more beneficial longer-term behavior and, if so, its effect on our economy is ubiquitous. It occupies increasing attention in corporate board rooms, executive suites and investment management businesses from the smallest to the largest. The debate is a commonplace topic in the legal and academic worlds as well as the financial press, and it is rapidly spreading to more general news outlets and the political scene—to the point where at least one Presidential candidate has made the debate a focal point of her tax reform platform.
A complicating factor in the debate is that there is no consensus about what short-term and long-term refer to. Is or should the debate be about:
- investor behavior (e.g., short-term traders versus long-term holders),
- investor objectives (e.g., increases in portfolio value in the short-term at the cost of foregoing better long-term fund performance),
- corporate behavior (e.g., focusing on short-term profitability to meet or better quarterly performance goals to the detriment of greater long-term profitability), or
- corporate objectives and strategy (e.g., engaging in financial engineering to generate short-term value creation, thereby precluding long-term investment in building the business through research and development, improved plants and production methods or product and market expansion)?