Media Release
Date: 28 May 2014
Global directors urge business to take a longer-term outlook
An international network of directors institutes has called on corporate decision makers to abandon short-term perspectives and objectives in
favour of longer-term considerations that will produce more sustainable outcomes.
The Global Network of Director Institutes (GNDI) argues in a new paper released today that excessive short-termism may lead to reduced
shareholder value and returns over the longer-term as result of the following:
- missed opportunities to create enduring value for a company and therefore its shareholders.
- under-investment in value-creating opportunities such as research and development
- the rejection of long-term projects, or projects with high build or sunk costs, including infrastructure and high-tech projects.
“Boards need to think about the strategic decisions in the context of the long-term financial health of their companies There are occasions
where it is best to reject actions that will produce short-term gains at the expense of longer-term interests of a company and its shareholders,”said chair
of GNDI, John Colvin.
“Directors should consider developing and disclosing a clear framework for managing long-term value creation and curbing excessive short-termism,” Mr Colvin said.
GNDI was founded in 2012 and brings together 10 member-based director associations from around the world with the aim of furthering good
corporate governance. Together, the member institutes comprising the GNDI represent more than 100,000 directors from a wide range of organisations.
The new GNDI paper sets out are some suggested practices, which extend beyond minimum regulatory requirements, that boards of listed companies could adopt to help foster longer-term value creation. These include:
- Setting forward-looking strategic goals and implementation plans that are properly monitored.
- Reporting practices that disclose short-term performance in the context of medium and long-term goals and strategies.
- Executive remuneration that is based on long-term performance measures to avoid excessive weighting of short-term remuneration.
“Many member countries of GNDI have taken steps to foster better long-term decision making in the corporate world. GNDI supports these efforts to
curb excessive short-termism and encourages business leaders to remain committed to producing sustainable outcomes to the benefits of all stakeholders,” Mr Colvin said.