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- Ensuring that strategic investments are fully funded each year and have the appropriate talent assigned to them.\u00a0<\/em>To formalize this practice, boards can ask management to report on the funding and progress of strategic initiatives and review that report for signs of effective strategic implementation.<\/li>\n
- Evaluating a CEO on the quality and execution of the company\u2019s strategy, the company\u2019s culture, and the strength of the management team, not just on near-term financial performance.<\/em>\u00a0Responses to the survey by FCLTGlobal and McKinsey indicate that companies that evaluate executives\u2019 performance mainly in terms of the company\u2019s financial results\u2014rather than on how they achieved those results\u2014were 13 percent less likely to have revenue growth above peers.<\/li>\n
- Structuring executive compensation over longer time horizons\u2014including the time after executives leave their companies.\u00a0<\/em>Adjusting some elements of executive pay structures, such as the time horizon over which CEOs are compensated, appears to encourage long-term behaviors on the part of CEOs.<\/li>\n<\/ul>\n
CEOs,\u00a0<\/em>supported by their top teams, are ultimately responsible for creating long-term orientations in their companies. An important part of that responsibility is serving as role models for the rest of their management teams when making big decisions. CEOs can also promote a long-term orientation among managers and employees by applying their influence and authority in four ways:<\/p>\n
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- Personally ensuring that strategic initiatives are funded and staffed properly and protected from short-term earnings pressure.<\/em>\u00a0Our survey found that companies whose CEOs ensure resources are allocated to critical growth areas are more likely than other companies to exhibit greater organic revenue growth than their peers.<\/li>\n
- Adapting their management systems to encourage bold risk taking and to counter biased decision making.<\/em>\u00a0For example, implementing a company-wide approach to resource allocation can help managers see that their portfolios can accommodate bets on relatively risky endeavors.<\/li>\n
- Proactively identifying and engaging long-term-oriented investors\u2014and having the courage to ignore short-term shareholders and other members of the investment community.\u00a0<\/em>It helps CEOs to spend more time\u00a0talking with long-term investors<\/a>. Many feel they learn a lot from\u2014and even enjoy\u2014these conversations, which also help reassure executives that a long-term outlook best serves the company and its shareholders.<\/li>\n
- Demonstrating the link between financial and nontraditional metrics to prevent short-term trade-offs.\u00a0<\/em>To enrich their dialogue with long-term shareholders and other stakeholders, executives can select, track, and report nontraditional indicators, such as employee satisfaction, that are most material to their companies\u2019 long-term performance.<\/li>\n<\/ul>\n
Executives undeniably face real pressure to focus on and deliver satisfactory short-term results. However, they should weigh short-term demands against two other noteworthy considerations. The first is the strong empirical evidence showing that companies that seek strong long-term results outperform companies that optimize short-term results. The second is the long-term interests of both investors and other stakeholders.<\/p>\n
Business leaders who choose to prioritize long-term value creation must take on the responsibility of reorienting their companies accordingly. By understanding which management behaviors distinguish successful long-term companies and expressly fostering those behaviors, CEOs and boards can help their companies produce value for stakeholders over the long run.<\/p>\n
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\n\n - Adapting their management systems to encourage bold risk taking and to counter biased decision making.<\/em>\u00a0For example, implementing a company-wide approach to resource allocation can help managers see that their portfolios can accommodate bets on relatively risky endeavors.<\/li>\n
- Evaluating a CEO on the quality and execution of the company\u2019s strategy, the company\u2019s culture, and the strength of the management team, not just on near-term financial performance.<\/em>\u00a0Responses to the survey by FCLTGlobal and McKinsey indicate that companies that evaluate executives\u2019 performance mainly in terms of the company\u2019s financial results\u2014rather than on how they achieved those results\u2014were 13 percent less likely to have revenue growth above peers.<\/li>\n