Short-termism is seldom regarded as a positive attribute for managers to adopt, especially at a time of disruption and change.  Alas, research from the Cornell Business School suggests that American firms, and indeed investors and policymakers, are actually becoming more and more short-term oriented.

The researchers analyzed the strategic focus of publicly listed firms from 1980 to 2013 and found a number of factors that contribute towards this shift in mentality, including the types of investments made by the firm, the compensation paid to the CEO, the patience levels of investors, and the external pressures faced by the firm.

Discounted returns

The analysis found that investors often discount the expected future returns of public firms, which the authors believe has serious implications for the health not only of individual firms but of the market as a whole.

For instance, if companies are focusing more on the short term, it’s very easy for their strategic decisions to become disjointed and disconnected from their long-term interests.  These firms also run the risk of overlooking crucial areas that contribute to their health and maintaining their value over the longer term, with areas such as research and development, employee development, and corporate sustainability some of the crucial issues that might fall by the wayside.

The researchers hope that their findings will help both business leaders and policymakers better understand evolving business and market trends, and therefore help them to develop effective long-term strategies.