Forman & Field Managing Director Lance Forman on the need to incentivise long-term growth in the economy
- Credit: Carmen Valino - on shift
Every time I hear someone spout the word ‘sustainability’ I have an urge to leave the room.
Sustainability is the buzz word of the early 21st century, vastly over-used, a political necessity in every walk of life, not least commercial operations, and yet, despite this, the irony is that we operate in a world which is far too predisposed to short-termism.
Bankers have been blamed for almost bringing down western economies by their greed, emanating from bonus structures which reward excessive risk taking.
However, the buck does not stop with the bankers; bonuses rewarding short- term results do not lead to sustainable growth in any business or economy.
In a world in which companies need to show ever-growing profits, something has to give.
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Increasing profitability can only be achieved in three ways; higher prices, lower costs or improved productivity.
Prices can be raised to a point, but competitive pressures limit these otherwise customers will go elsewhere. Costs can be reduced to a point but can only go so far without the quality of service or product suffering, and productivity improvements also have their limitations and can take time to achieve.
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What happens in so many walks of commercial life is that management is brought in on short-term contracts.
If they can improve profitability they get their bonuses; so costs get cut at the expense of quality.
Management don’t care if quality goes out the window, as this takes time to filter through to customer demand when they will long be gone.
Profits only increase short-term, management receive their rewards, and longer-term the business suffers as customers leave.
In today’s society we hold up serial entrepreneurs as icons of success; but they are simply the asset strippers of the past. They come in, go out and build nothing of long-term value, just seize a moment in time and profit from it.
For a real, sustainable, growing economy, and not simply the façade of sustainability, we need to incentivise long-term growth.
We need tax structures that reward long-term shareholdings and investment and we need bonus structures that reflect this too.