Avoiding “Short-Termism” in Business

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I’m on my way to Orange County, California, for the 2011 Fortune Brainstorm Green conference. I’ll be moderating panels on the scalability of green energy, and the fate of green capital. One my panelists for the later meeting will be Mindy Lubber, the president of Ceres, a national network of investors, environmental organizations and public interest groups that work to promote sustainability in major corporations. Ceres tries to use the power of large, institutional shareholders—like major public pension funds—to nudge companies towards greener and more sustainable practices. The logic is simple—if environmentalists want to see capital get green, then they need to get the owners involved.

But here’s the challenge—as capitalism speeds up, corporate managers find themselves being forced to meet quarterly or even briefer targets. No time to plan and install that grand, long-term transformation to sustainability—if it doesn’t pay off quickly, the CEO may not be around the next month. It’s what Lubber, in a post on the Ceres website, calls the “tyranny of short-termism,” and business will never really be green until it’s ended:

Sustainability will be a central nexus for corporate innovation and growth as the sustainable global economy takes hold. Companies that resist by clinging onto short-term strategies – the U.S. automakers’ previous misguided reliance on gas-guzzling vehicles, comes to mind – do so at their peril.How do companies avoid the trap of short-termism in favor of sustainable approaches that achieve long-term value creation? The Ceres Roadmap for Sustainability charts a course, offering four parallel paths (governance, stakeholder engagement, disclosure and performance) for 21st century corporations that can be overlaid on Barton’s blueprint.

Lubber contrasts sustainable practices with what McKinsey’s Dominic Barton has called “quarterly capitalism,” the obsessive focus on the short-term that has proven so destructive—not just for the environment, but for business itself. Think of BP’s relentless efforts at cost-cutting, which may have helped its bottom line in the short-term but which helped lead to the enormously expensive Gulf oil spill.

But Lubber goes further. She believes that business has not yet begun to reckon with the ecological pressure closing in on it—nor has it begun to realize the opportunities that could be tapped:

In addition to the economic crisis, businesses operating in our global economy face colossal environmental and social challenges – climate change, energy and water constraints, population pressures, rising consumer expectations and endemic poverty, to name just a few. Addressing those problems with urgency and scalable solutions will be a key driver of future prosperity for global companies and their wider community of investors and other stakeholders.

The business case for acting on sustainability is compelling. A recent MIT Sloan/Boston Consulting Group (BCG) study divides surveyed companies into “embracers,” those actively integrating sustainability into their core business strategies, and “cautious adopters” who see sustainability as “essential to remaining competitive” but lag on core integration.

“The embracers, it turns out, are the highest performing businesses in the study,” say MIT and BCG — not only on tangibles such as profitability, but also intangibles such as employee engagement, innovation and stakeholder appeal. Among the embracers getting shout-outs: Unilever, Duke Energy, Proctor & Gamble and Clorox.

It’s worth reading the rest of Lubber’s post—and I’ll have more to report from the Fortune conference.