If You Want Influence, Play the Long Game

Over the last ten to fifteen years, there has been a growing public expectation that companies commit time and resources to help address major global challenges such as education, poverty, gender equality or access to clean water. Furthermore, a mounting body of research – led by the seminal work of Mark Kramer and Michael Porter around the concept of “Shared Value” – argues that companies which do good for society end up doing good for their brand, reputation and bottom line.

There has been, however, a consistent impediment to companies doing more to tackle these big issues – “short termism.” Many corporate executives continue to operate under the misguided belief that important audiences (especially investors, consumers and policymakers) are so focused on short-term needs (such as share price, regulatory compliance and new product innovation) that the necessary resources cannot be allocated to make a tangible impact on societal issues that require a long-term approach and an ongoing commitment of resources.

Too often that short-term mindset has caused private sector leaders to avoid transformative change and instead seek out small, highly focused initiatives able to deliver a quick win. Instead of tackling the water crisis in Flint, for example, it is far easier to hand out bottles of water at a local charity event. And success is measured by easy-to-understand metrics such as social media engagement and one-day press stories rather than actual impact such as lives changed or laws enacted.

At Handshake, we believe that companies only become influential when they simultaneously create value for markets, solve a problem for a person and solve an issue for society. Many companies do one or two of these things. Only rare companies such as Starbucks, Tesla, and GE achieve all three. A big reason so few companies achieve influence is the short-term mindset holds them back.

Long-Termism is What the Public Wants

The irony of this is that the public actually wants – and expects – companies to think big, take risks and make bold investments to improve society while also selling their products and services for a profit. Companies just need to approach these investments in a smart, strategic manner while engaging audiences such as consumers, investors, and policymakers in a dialogue about the value of the work and how it impacts society.

For example, research conducted for Handshake by AmericanPublic.us earlier this year found that only 38 percent of Americans think it is a “good thing” when a corporation uses its influence generally. However, if a corporation uses its influence to solve a problem that both benefits society as a whole and its business interests, 85 percent of Americans think it is a “good thing” (with 34 percent saying it is “definitely a good thing”).

In other words, companies must clearly articulate to the public how their products, services, investments in employees and engagement in communities are making a tangible difference for society. They just can’t assume the public will understand the value proposition and instinctively give them credit for it.

Shareholder Primacy is Outdated

A common complaint of many corporate executives is that their investors do not let them focus on the long-term or invest in solving major issues because of the need to show bottom-line growth and rising share prices in every quarterly earnings report.

In an October 12, 2017 Harvard Business Review article, Oliver Hart and Luigi Zingles argue that both investors and corporate executives are wrongly fixated on the belief that the only responsibility of business is to maximize profits. Unfortunately, legal precedent has consistently buttressed that belief by holding that boards of directors only owe loyalty to the people that elect them – shareholders.

However, Hart and Zingles assert that companies must instead focus on maximizing shareholder welfare, not value. According to the authors:

Our starting point is that shareholders care about more than just money. Many shareholders pay more for fair-trade coffee, or buy electric cars rather than cheaper gas guzzlers, because, using the current economic lingo, they are prosocial. They care, at least to some degree, about the health of society at large. Why would they not want the companies they invest in to behave similarly?

Furthermore, the rise in concepts such as environmental, social and governance (ESG) indicators to measure corporate performance and its impact on society shows that the public – including many shareholders – want companies to focus on issues far beyond the bottom line and shareholder return when it comes to their role in society.

Investors Increasingly Focused on the Long-Term

Another flaw with the belief of shareholder primacy is that it no longer reflects the mindset of many investors, particularly long-term investors such as mutual funds, endowments and pension plans. According to a recent article by Paul Hodgson in Responsible Investor, “Long-term investors would like to see CEOs spending more time talking about their future story, talking about their long-term capital allocation plan, and, within the long-term capital allocation plan, to focus on ESG factors, especially laying out long-term measures for five years ahead in every single presentation.”

In other words, corporate leaders now have the permission – if not expectation – from the public to tackle societal issues that will take years to solve. The key is to align those endeavors with the core business and regularly communicate the rationale and outcomes of the work to the public. If leaders are able to do that, they will create an organization that has influence, able to transcend its industry and be a force for good in society.