Short-termism: good until it goes bad.

• Author: Tahmincioglu, Eve
• Position: SHORT-TERMISM

There are days James Pethokoukis, a scholar at the conservative think tank American Enterprise Institute, isn't quite sure short-termism is the problem.

"When you talk to companies they feel a lot of shareholder pressure to focus on quarterly returns," he explains. "A lot of companies would rather not have the pressure, but we don't want to go back to the sleepy capitalism of the '80s when Corporate America got fat and happy."

If corporations aren't doing enough long-term investing, he adds, that's not necessarily the fault of investors.

Every company right now has elements of short-termism, says Blair Jones, managing director of executive compensation consultancy Semler Brassy, adding that organizations need to take short-term steps to get to the long term. "The worry is when you're so focused on delivering short-term results you either take the eye off the ball on some things like quality, or ethical behavior, because you're just so focused on delivering results."

"Quarterly capitalism," Pethokoukis maintains, certainly leads to pressures, and as a result some firms may decide not to go public because of such pressures. The issue, he says, is worth exploring, but in general if companies aren't investing in the long term they may not be "fantastic machines to invest in."

Indeed, adds Jones, "Short-termism gone bad" only happens in companies that feed off of short term exclusively. She pointed to Enron as one well-known short-termism casualty because of its ultra competitive culture to deliver every quarter that led to creative and eventually illegal behavior.

But more often than not, it's less a story about corruption than just a great company that "slowly withers away" because it only focused on the short term, she says.

One printing company Jones worked with was so focused on high dividend yields for shareholders they didn't invest enough money in moving the organization more quickly to digital.

"They rode the short-term wave too long and couldn't change fast enough," she notes.

Another example she offers is a retail apparel company that was an investment community favorite. "It over-leveraged its existing model, opening new stores as well as expanding outlet stores in the U.S., where it was the market leader, to accelerate its near-term growth," she recalls.

In doing so, however, it failed to

* invest sufficiently overseas, where there was more long-term growth opportunity and

* plan for competition, which was able to steal significant...