January 3rd 2021
John M. Keynes’ famous quote “In the long run we are all dead” was quite often used in the corporate environment by Jack Welsh (former CEO of General Electric), meaning “we need to focus on short-term delivery, period”. For many corporate leaders he was considered one of the best American CEOs of the last century, responsible in 20 years (from 1981 to 2001) to transform GE from an almost bankrupted company to the #1 position in its industry, after revenue jumped nearly fivefold during his tenure. Twenty years after, we now see a corporate movement towards stakeholder capitalism where the notion of “profit and short-term only” does not seem to be the recipe to succeed. As we move away from one of the worst years (on health, economic and social terms) that modern times have witnessed and embark on a year that hopefully will “only” generate “half of the damage”, it is more important than ever for the corporate world to define strategies to strike the right balance between long- and short-term objectives. It is not rare that this apparent conflict of short-term vs long term shows up in discussions amongst executives and quite often that expression from Jack Welsh “fills the room”. But let us be clear - is there really a conflict? Meaning, can any company survive in the long-term without short-term financial healthy results? Except for that “initial period to build a business”, the answer is… obviously not. So, what is the issue? Well, the issue seems to be what key stakeholders expect from companies now, and the real possibility that they will stop buying from those that do not have this simple message clear: Whilst it is true that without economic sustainability it is harder to follow any sort of decent environmental and social behaviour, what is becoming abundantly clear is that without a clear long-term strategy of respect for the environment and the social dimensions, there is no way there will be any sort of long-term economic sustainability. Period. Put it simply, no short-term decision makes sense if the long-term strategy does not accommodate the respect for environmental and social challenges. Could it be that it was the lack of long-term alignment with societal issues that led to the problems GE has been facing? Most companies have obviously always taken in consideration both short and long term when taking decisions. But the decision-making driver was, most of the times (with some gratifying exceptions), what was best for shareholders. It was all about risk management – if a company decided not to pursue a specific investment because it harmed the environment, the main reason behind was not to protect the environment but the consideration that was given to the impact it could have on the firm´s reputation and future revenues. When business leaders move beyond risk management and the consideration becomes truly the well-being of the planet, people and communities, then decisions are made from a different perspective and new opportunities arise to create value and foster resilience and engagement. This is the context in which the balance of short-term vs long term needs to be achieved by any company willing to succeed. Is it possible to succeed short term at the expense say of the environment or the employees? It is. But…”in the long run they will all be dead” – great phrase Jack but makes a lot more sense in this context… Have a great and impactful…2021! I am an optimistic and I believe the message above is becoming increasingly understood by key executives around the globe. I see hope. Nuno Moreira da Cruz Executive Director Center for Responsible Business and Leadership