TORONTO, May 28, 2014 /CNW/ - An international network of directors' institutes has called on corporate decision makers to abandon short-term perspectives and objectives in favour of longer-term considerations that will produce more sustainable outcomes.
The Global Network of Director Institutes (GNDI) argues in a new paper released today that excessive short-termism may lead to reduced shareholder value and returns over the longer-term as a result of the following:
- Missed opportunities to create enduring value for a company and therefore its shareholders;
- Under-investment in value-creating opportunities such as research and development;
- Rejection of long-term projects, or projects with high build or sunk costs, including infrastructure and high-tech projects.
"Boards need to think about strategic decisions in the context of the long-term financial health of their companies. There are occasions where it is best to reject actions that will produce short-term gains at the expense of longer-term interests of a company and its shareholders," said John Colvin, chair of GNDI.
"Directors in Canada have witnessed first-hand the effect of short-termism on eroding confidence in capital markets and company value. To achieve long-term corporate success, the board should be committed to working with and influencing management to focus on long-term value creation, and providing support when faced with short-term pressures," said Stan Magidson, president and CEO of the Institute of Corporate Directors, and deputy chair of GNDI.
The new GNDI paper sets out some suggested practices, which extend beyond minimum regulatory requirements, that boards of listed companies could adopt to help foster longer-term value creation. These include:
- Setting forward-looking strategic goals and implementation plans that are properly monitored.
- Reporting practices that disclose short-term performance in the context of medium and long-term goals and strategies.
- Executive remuneration that is based on long-term performance measures to avoid excessive weighting of short-term remuneration.
"Many member countries of GNDI have taken steps to foster better long-term decision making in the corporate world. GNDI supports these efforts to curb excessive short-termism and encourages business leaders to remain committed to producing sustainable outcomes to the benefits of all stakeholders," Mr. Colvin said.
The full text of the GNDI perspectives paper, "Curbing Excessive Short-Termism," can be found at www.gndi.org/papers.
GNDI was founded in 2012 and brings together 10 member-based director associations from around the world with the aim of furthering good corporate governance. Together, the member institutes comprising the GNDI represent more than 100,000 directors from a wide range of organisations. For more information, please visit www.gndi.org.
About Institute of Corporate Directors
The Institute of Corporate Directors (ICD) is a not-for-profit, member-based association representing Canadian directors and boards across the for-profit, not-for-profit, and Crown sectors. The ICD has more than 8,500 members and 11 local chapters across Canada. The ICD fosters the sharing of knowledge and wisdom through education, professional development programs and services, and thought leadership and advocacy to achieve the highest standard of directorship. For more information, please visit: www.icd.ca.
SOURCE: Institute of Corporate Directors (ICD)
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