Have you ever:
- Told one of your line managers to “do whatever it takes to make your numbers this quarter”?
- Pulled sales from next quarter to make this quarter’s numbers?
- Cut into critical R&D funds to hit Wall Street forecasts?
- Asked the CFO to lower the reserves for future expenses to help earnings this quarter?
- Taken an excessive restructuring charge, knowing that you could siphon some of the excess charges from balance sheet accounts into future earnings when you really need them?
If so, you are committing suicide by quarter.
Unsustainable and Untenable
These all-too-frequent actions are unsustainable. They put you on an accelerating treadmill, sacrificing what’s right for customers, employees, and even investors.
These actions are common because people are good at rationalizing them: “Everybody’s doing it.” “If we don’t, we can’t compete.” Even “In the long run we’re all dead.” With all due respect to John Maynard Keynes, we beg to differ: In the long run we leave a legacy either of honor or disgrace.
As we detail in our book, Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, one of the great scourges of our age is “short-termism.” In a large-scale study of CFOs and CEOs, a staggering 78 percent of the managers surveyed admit to sacrificing long-term value to achieve smoother earnings. Before HealthSouth’s indictments and multibillion-dollar restatement of financial performance, the firm had met earnings predictions to the penny for forty-seven straight quarters. Coincidence?
In the wake of the recent global financial crisis, a group of VIPs from different sectors published a manifesto, saying:
We “have allowed short-term considerations to overwhelm the desirable long-term growth and sustainable profit objectives of the corporation.”
Why is short-termism poisonous? Because it leads to unethical or unsustainable behavior, or both. Because it inevitably blows up, ultimately costing the firm multiples of the near-term gains they made by gaming the system. Because employees catch wind of it and begin withholding their trust and commitment. Because that kind of behavior spreads like a virus in an organization.
Consequently, no one finds another way forward to make the numbers ethically and sustainably. They take the easy way out.
It doesn’t have to be that way.
- When Medtronic CEO Bill George (now a Harvard Business School professor and best-selling author) learned about illegal behavior overseas, he fired the culprits.
- When Amazon.com went public, CEO Jeff Bezos wrote, “It’s all about the long term … (we are building) … something that we can tell our grandchildren about.”
- When Google conducted its initial IPO, cofounder Larry Page (now CEO) wrote, “As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same…. even if we forgo some short-term gains.”
- After Tyco’s former CEO and CFO were imprisoned for egregious leadership, the firm’s new outside lead director and CEO fired the old board and management team to instill what we call a “culture of character.”
The investor base is not homogeneous. Sure, we have the day traders who live by daily stock fluctuations. But there is a growing body of investors—notably including “impact investors”–who want not just results today, but excellent, ethical, and enduring results.
Suicide by quarter? Or triple crown leadership? Your choice.
Leadership Derailers Assessment
Take this assessment to identify what’s inhibiting your leadership effectiveness. It will help you develop self-awareness and identify ways to improve your leadership.
Reflection Questions
- What have you done to guard against short-termism?
- What are the best ways you have found to build a culture of character?
Tools for You
- Leadership Derailers Assessment to help you identify what’s inhibiting your leadership effectiveness
- Personal Values Exercise to help you determine and clarify what’s most important to you
- Alignment Scorecard to help you assess your organization’s level of alignment
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Gregg Vanourek and Bob Vanourek are leadership practitioners, teachers, and award-winning authors (and son and father). They are co-authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, a winner of the International Book Awards. Check out their Leadership Derailers Assessment or get their monthly newsletter. If you found value in this, please forward it to a friend. Every little bit helps!
