Report calls on business to take responsibility and think long-term

The past week has provided further evidence of short-term outlooks dominating business. Energy companies have been criticised for price hikes far above inflation that squeeze consumers without any significant indication that any of the additional margin will be invested in green measures.

At the same time, Corporate Watch has yet again flagged up the short term drivers that see global corporations avoiding their fair share of tax in the countries that generate the sales and profits.

Such news stories highlight a clear drive to maximise short-term returns. This is rational corporate behaviour. Quarterly reporting that shows growth in sales, margins, profit and, for listed companies, strength in share prices, keep shareholders and the board satisfied. It also keeps the politicians happy. After all, the private sector generates jobs and so flourishing companies are the road to recovery and growth.

The problem stems from how we define 'flourishing' and from our concepts of growth.

Quarterly success can be a pointer to sustainable growth. Companies that do not survive the short term need not worry about long term growth. Yet, short-termism in business can also escalate instability and risk. Devoting disproportionate energy to the immediate future too often comes at the expense of longer-term sustainability.

The Oxford Martin Commission for Future Generations brought together a group of business and other leaders out of shared concern about the gridlock that undermines action on many global challenges and the increasing short-termism which pervades governments and business cultures. The future is full of opportunities but it is also highly uncertain and characterised by growing risks, including the increasing burden of disease and the challenge of climate change.

Growth is benefiting too few, and so is associated with rising inequality and joblessness. Per capita consumption of food, water, minerals and energy is unsustainable. We need to rethink urgently what is rational and change existing approaches to ensure that this generation and the next are able to enjoy the benefits of growth.

The commission's report, Now for the Long Term, identifies that businesses need to shoulder greater responsibility. It is time to reassess the relationship between shareholder and societal value and extend the horizon.

There are, of course, many inspiring examples of change, many featured in this forum. Initiatives such as the B-team, set up by Richard Branson and Jochen Zeitz, are taking a lead in putting people and planet on an equal footing with profit. The fact however remains that the vast majority of business leaders are failing to grasp responsibility on the scale required.

Several of the Commission's recommendations go directly to these issues. Our call to "revalue the future" includes a number of ideas for focusing business on the long term. Building on the advances of the World Bank, the Mo Ibrahim Foundation, Transparency International and other agencies in measuring governance, the Commission recommends the development of a long-term impact index.

The index would rate the effectiveness of leaders of countries, companies and international organisations in addressing longer-term challenges. A small, manageable number of indicators - such as median household income, biodiversity protection, open decision making and carbon neutrality - and a select group of countries, companies and organisations would be included in the first instance to test and develop the index.

Our proposals include a call for a voluntary world taxation and regulatory exchange, which would put pressure on companies to disclose their tax planning and transfer pricing arrangements and on governments to reveal preferential tax rulings. The aim of the exchange would be to reinforce the overall framework of the OECD and G20 Base Erosion and Profit Shifting Action Plan to ensure that multinationals pay their fair share of tax and that profits generated in the digital economy are not unfairly and artificially shifted to other jurisdictions.

We also recommend the development of a health assessment for listed companies. This assessment would concentrate on long-term value creation and absolute performance, taking into account portfolio churn, remuneration incentives, length of investments, shareholder voting rights, organisational talent and tenure, time dedicated to long-term strategy deliberations, and innovative capacity.

Realigning business incentives towards a longer horizon means we need to roll back the weight attached to quarterly earnings and short-term incentive bonuses. This means smarter regulation, remuneration tied to long-term performance, and voting structures that reward long-term growth.

Most of all, we need business leaders prepared to stake their significant ingenuity, imagination, resources and capital on long-term value creation.

Ian Goldin is vice-chair of the Oxford Martin Commission for Future Generations, director of the Oxford Martin School and Professor, University of Oxford. Now for the Long Term is available as a download

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