Short term vs. long term: a skeptical view ... and an alternative: the main narrative we have about business is deeply flawed.

Author:Freeman, R. Edward
Position:ENDNOTE
 
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R. Edward Freeman is University Professor at the Darden School of Business, University of Virginia, and academic director of the Business Roundtable Institute for Corporate Ethics, which is housed at the Darden School. He is the co-author of Bridging the Values Gap: How Authentic Organizations Bring Values to Life (Berrett-Koehler Publishers, 2015), Stakeholder Theory: The State of the Art (Cambridge University Press, 2010), Managing for Stakeholders (Yale University Press, 2007), and the award-winning book, Strategic Management: A Stakeholder Approach, originally published in 1984, in which he traced the origins of the stakeholder idea and suggested that businesses build their strategy around their relationships with key stakeholders.--J. Kristie

As the debate rages about the appropriate form of capitalism, I have become increasingly skeptical about one of the underlying assumptions that never gets challenged. It is the distinction between "short-term" and "long-term." We are told that the ills of capitalism are due to its short-term orientation, and that this leaves a big gap between Wall Street and Main Street. Directors are urged to take a long-term view of their companies, and executives are to manage for the long term.

This distinction can easily become an excuse. For many years I have been told, "Well, all these ideas of yours about stakeholders and ethics and such will work in the long term, but in the short term business is about profits and shareholders." The big problem with this line of reasoning is that it is always the short term. We live in the "now," not the future. If these ideas eventually pay off, there must come a time where they are paying off in the short term, or else they never pay off.

The real problem has nothing to do with the "short term" vs. "long term" distinction. The real problem is that the main narrative we have about business is deeply flawed. That narrative says that business is about making money for shareholders and that everyone involved in a business transaction is a short-term maximizer of their individual self-interest.

There is now a robust body of knowledge that these assumptions are no longer useful. There are countless research studies that show that people are quite complicated, and there are many businesses that defy the idea that shareholder value is all that counts.

Most businesses have a purpose, a raison d'etre, an answer to "why they exist" that goes well beyond making money for...

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