In a week when we have seen the effects of political gridlock writ large in US politics, the report Now for the Long Term feels well-timed in its strong call for leaders in politics, business and civil society to include long-range thinking and planning into the mix. The immediate pressures of today cannot be ignored but neither can the need to create a sustainable future; not least if we want to leave a positive legacy.
The danger of leaving a damaging legacy is real. The growing financial debt, rising carbon emissions, dwindling natural resources and the escalating burden of chronic disease all have the potential to leave unsolvable problems for the next generation if we fail to act on the scientific bases that show clearly the difficulties we are storing up. The Oxford Martin Commission for Future Generations has brought together scholars from the University of Oxford with 19 leaders from the world of business, government and civil society, to look at the implications of business as usual and find practical ways to overcome short-termism.
In business it is more difficult than ever to balance the pressures of today with goals for the next decade. Business incentives tend to revolve around swift successes; increasing weight is attached to mark-to-market accounting, quarterly returns and short-term incentive bonuses. Uncertainty in global markets has led many companies and business leaders to seek safety in quick returns on investment. Questions about the role of government and unpredictable behavior, such as was manifest in the recent Washington stand-off, compounds the problem.
It is not that the short-term is unimportant. After all, if firms go bankrupt there is no point in planning for the long term. We forget at our peril that the private sector is the largest source of jobs and that flourishing companies are vital for growth, and are a particularly valuable asset in a world that is still suffering the cascading effects of the 2008 financial crisis. Government employment is contracting, so the private sector must generate the jobs required for economies to recover from the crisis.
Sustainable growth, however, requires that we go beyond the immediacy of quarterly reporting. While short-term measures can be a pointer to sustainable growth, they are not enough. Simply relying on short-term measures of success in business can create longer- term instability and risk.
While the future is full of opportunity arising from the extraordinary advances of recent decades in terms of living standards, life expectancy and economic development, it is also highly uncertain and characterized by a pressure on resources and economic inequality. The rational actions of individuals and firms when aggregated lead to escalating demand for food, water, minerals and energy which, together with the environmental consequences of escalating global consumption, is unsustainable. In order to understand the implications of our current patterns of consumption, we need urgently to reassess the relationship between shareholder and societal value and shift the focus significantly to the long term.
Dominic Barton, the Managing Director of McKinsey & Company, and Mark Wiseman, President and CEO of Canada Pension Plan Investment Board, have both argued that firms are under increasing pressure to be short-term at the cost of longer-term strategic decision-making. Performance metrics based on share prices are used at the expense of long-term value creation. At the same time rewards are skewed to investors who want to make a quick return and who have little concern for a company's long-term prosperity.
Many companies and commentators are pressing for a shift towards the long term. Barton and Wiseman have sought to influence the buy-side by encouraging institutional investors and corporate directors to steer capital towards long-term value creation. The World Business Council for Sustainable Development is helping to galvanise the global business community towards sustainable ends. The B-Team, founded by Sir Richard Branson and Jochen Zeitz, is among the most recent private sector responses to short-termism, calling on businesses to prioritise people and planet alongside profit.
This work is encouraging but too many businesses are failing to show leadership and take responsibility on the scale required. Some global firms have become skilled at transcending national jurisdictions to avoid obligations, be they on the environment or tax. In a globalised commercial world, ensuring compliance requires coordination between countries that often compete for investment. In Now for the Long Term, the report of the Oxford Commission for Future Generations, we call for a move to "revalue the future", which includes a number of ideas for focusing business on the long term. Our proposal for "innovative, open and reinvigorated institutions" fit for this century, not the last, includes a call for a Voluntary World Taxation and Regulatory Exchange. This Exchange will raise pressure on companies to disclose their tax planning and transfer pricing arrangements and on governments to reveal preferential tax rulings.
Collectively, we need to rethink corporate governance so that owners and boards embrace longer-term mindsets and responsibilities to society at large. Above all, we need business leaders to invest their significant ingenuity, creativity and resources on creating long-term value.
Changing course in such ways may seem contrary to the rational choices of individual investors and companies. However, if we do not step up to this challenge, the collective result may be consequences so damaging future generations will wonder how we squandered our truly remarkable opportunities. The consequences of our actions will resonate for generations to come. But the choices are ours, and need to be taken now.
This post is part of a series produced by The Huffington Post and The Oxford Martin Commission for Future Generations, in conjunction with the release of the latter's report Now for the Long Term, published by the Oxford Martin School at the University of Oxford. The report's recommendations aim to break the gridlock that undermines attempts to address the world's biggest challenges; to bridge the gap between knowledge and action; and to redress the balance between short-term political pressures and a need to secure a sustainable, inclusive and resilient future. To see all the posts in the series, click here. For more information on the report, click here.
This story appears in Issue 72 of our weekly iPad magazine, Huffington, available Friday, Oct. 25 in the iTunes App store.