Taking the long road
Being a listed company has many benefits – easy access to capital, for example, and an ability to spread risk among a wider group of investors. But listing can also change a business’ priorities as the share price morphs from a useful barometer of market sentiment to a millstone around the neck of CEOs whose performance is judged solely on the whims of that very market.
This encourages short-termism, with measures implemented to satisfy the immediate interests of speculators rather than the long term interests of the company. Of executives surveyed by McKinsey, a whopping 61% said that they would cut discretionary spending in order to avoid missing an earnings target, while 47% would delay starting a new project even if they believed that doing so would reduce long-term value.
The same applies in football where the league table – rather than the share price – is the barometer to which scrutiny is applied. Our position in the table can distract us from investing in initiatives that may deliver indirect long-term value. As such, our focus and budget is disproportionately focused on the players often to the long-term detriment of the club.
For example, these are all things that if invested in now would deliver future benefits to our club:
- Improving our process for allocating scouting resources will deliver sustainable improvements in the quality and value of players that we identify
- Understanding our financial and performance ROI in player development can help us to get better value from our academy
- Investing in better ways to remunerate our players and coaching staff may help to improve performance as well as manage financial risk
- Training our non-playing staff in negotiation may help to get better deals, enabling us to spend our transfer budget more effectively
Investing in these things may feel peripheral and may not get the juices going, but they will improve the context in which the team operates and will therefore have an indirect impact on performance over time.
Returning to the corporate world, McKinsey estimate that firms that were focused on the ‘long-term’ had revenue and earnings growth rates around 47% and 36% higher, respectively, than those for whom earnings targets were paramount. Perhaps taking the long road may lead us to a better destination after all.