The long and short of it.

• Author: Hughes, Kent
• Position: Investment decision making - Chairman's Agenda: Governing for Shareholder Prosperity

What exactly does drive Corporate America's investment decisionmaking, and how can its time horizons be extended?

Short termism has become a widely accepted explanation of America's longterm economic difficulties. It was one of the charges the Japanese leveled at American industry in the wake of President Bush's December 1991 trip to Japan. In the early days of the Bush administration, Richard Darman, Director of the Office of Management and Budget, described an America that "wanted its Maypo and wanted it now." One commentator saw short termism at the heart of the Go-go 1980s that stood in sharp contrast to an earlier America that built rising prosperity on a steady stream of coal.

Is it true? Has America traded the almighty dollar for the quick buck? America's recent inclination to short termism has been widely accepted, but its magnitude had been left unmeasured and its causes largely unexplained.

The council of Competitiveness, a private sector coalition of leaders from industry, academia, and organized labor, joined with the Harvard Business School to take a detailed look at the question of short termism. The research team was lead by Michael Porter, Harvard Business School professor, widely quoted author, and Council executive committee member. A group of top business school representatives and economics analyst explored a broad range of topics; in an attempt to gauge the dimensions and causes of short termism. Much of the work has been funded by the Alfred P. Sloan Foundation.

We started with the idea that short termism was a real problem. But we realized that a variety of public and private initiatives did not fit into a picture of a society condemned to a culture of endless todays and to corporations unable to see beyond the next quarter's financial statement.

Americans may want they Maypo, but we have just spent trillions of dollars over four and half decades to win the Cold War. By any measure, America still leads the world in basic science - the kind of largely public investment that pays dividends over the very long term. The story is equally complex in industry. We lead the world in aerospace and are very competitive in pharmaceuticals, two industries that demand a long-term perspective. Our venture capital industry makes high-risk investments that may take years to pay off. The team suspected that privately held firms may behave differently in terms of time horizons orientation than those that are publicly traded. And there...