Short term thinking is a large problem facing British business owners today and is responsible for slowed economic growth rate according to a new report that was published this week by the Labour Party.
Sir George Cox, the boss of the Institute of Directors wrote in a document that the only way that a business could actually be successful was to move past focusing on short term gains and instead focus on long term goals.
Cox recommended that there need to be some changes made to executive pay structures so that rewards are only given for long term results instead of short term goals. The idea is that this will help push them towards focusing on long term goals. The CBI on the other hand insists that pay should be something that firms have their own say in and that the government does not have any responsibility or right to legislate the matter.
Former Chief executive of IT Unisys, Sir George stated that placing pressure on employees to get quick results makes it hard for a company to develop in the long term because they do not think in that fashion. Instead, they only focus on one thing at a time. He also reported that about three-fifths of senior business leaders that he talked to also agreed that short term thinking was a major barrier to future economic growth.
Sir George coined the phrase ‘short-termism’ to refer to the problem among business that he believes is preventing future research, long term thinking, and ambition. He further expressed concern that businesses are not able to properly build international businesses that are competitive, and the absence of these companies is hurting the UK and its future economic position.
In order to remedy this problem Sir George believes that the UK Corporate Governance Codes should be rewritten to create long term incentives that are added into non-executive and executive director pay.