30 January THE LURE OF SHORT-TERMISM (2025-01-30) January 30, 2025 ESG, General, Governance Framework, Leadership, Stakeholders sustainability, governance, stakeholders, trust, leadership By Jené Palmer CA(SA) GCB.D (CGF Research Institute: Director) In the face of mounting pressures -- whether economic, political, or social -- organisations often find themselves tempted by the allure of short-term gains. These decisions may boost immediate profits, address fleeting crises, or satisfy vocal constituencies. However, such thinking comes at a significant cost. Recent developments, such as the rollback of diversity, equity, and inclusion (DEI) initiatives and renewed emphasis on the exploitation of oil and gas in key markets, underscore how easily short-term priorities can undermine long-term resilience and sustainability. These choices may offer immediate relief or political advantage, but their ripple effects on governance, stakeholder trust, and global sustainability cannot be ignored. The dangers of short-term organisational thinking Short-termism erodes the foundations of good governance and hampers an organisation’s ability to deliver long-term value. Critical areas of impact include: Erosion of governance standards Leaders often face conflicting demands between short-term financial performance and long-term sustainability. When organisations focus narrowly on immediate returns, they deprioritize ethical practices, transparency, and accountability. Decisions driven by short-term pressures often neglect stakeholder inclusivity, weakening trust among employees, customers, and investors. The risk of regulatory non-compliance also increases as organisations are relentlessly forced to cut corners to meet immediate goals. These matters are compounded when incentive plans are more heavily weighted to rewarding short-term financial performance with little to no emphasis on environmental, social and governance (ESG) aspects. By failing to capitalise on the value of good governance, organisations undermine their ability to maximise return on investment (ROI). Poorly implemented governance frameworks curtail the board’s foresight and the organisation’s ability to respond to changing circumstances and market conditions, further increasing the risk of being blindsided (or even destroyed) by adverse conditions. Compromised sustainability Disregarding or deprioritizing double materiality assessments is a high-risk strategy that exposes organisations to regulatory, financial, reputational, and operational challenges such as higher insurance premiums, supply chain failures, penalties or trade sanctions. Ignoring the opportunities presented by the circular economy may today lower costs or appease certain audiences, but it undermines the fact that a clean, healthy and sustainable environment is a human right (as recognised by the UN General Assembly). Against this backdrop, organisations should not only be mindful of societal backlash, but also of their future ability to access capital and attract (and retain) talent and customers. Loss of competitive advantage Companies that focus on short-term profits often cut funding for research and development (R&D), limiting their ability to innovate. Without sustained investment in new products, services, and technologies, businesses lose their edge to competitors who continuously improve. Short-term cost-cutting measures, such as lowering product quality or reducing customer service, also damages brand reputation and market positioning. Today’s talented professionals seek purpose-driven workplaces. They also want to feel valued and respected. A lack of investment in workforce cohesiveness and training and development often leads to high employee turnover rates and disengaged employees – all factors which ultimately negatively affect productivity, innovation and organisational performance. The role of leaders in overcoming short-termism The reality is that short term pressures are real and need to be acknowledged. The trick (as always) is to achieve balance. A rigorous, quantitative and forward-looking view is required to fundamentally understand the short and long-term risks and opportunities of the evolving geopolitical, economic, technological and social landscapes which influence organisational purpose and resilience. Navigating conflicting priorities will require empathy, discipline, and clarity of vision and organisational values. Extensive stakeholder engagement is essential. By recognising the interconnectedness of stakeholders (from employees to customers, communities and shareholders) and the interdependence of the organisation on its stakeholders and the natural environment in which it operates, leaders will be better positioned to future-proof their organisations, moving beyond risk mitigation to mobilizing opportunities. A call to leadership In these times of heightened uncertainty, short-term thinking may seem expedient, but it is not sustainable. Effective governance and impactful leadership demand that a long-term view be embraced - one that prioritizes integrity, resilience, and sustainability. Effective engagement with stakeholders is critical to ensuring an alignment of organisational purpose and action to address wide-ranging stakeholder needs, wants and concerns. Organisations need to foster a culture of ethical leadership and accountability where decision-making is driven by principles, not pressures. Responsible governance which considers societal and environmental impacts, must become a strategic imperative rather than an optional initiative. Organisations need to put people first and commit to inclusive leadership that values diversity, employee well-being, and social responsibility. We cannot afford to sacrifice the future for the convenience of the present. ENDS Words: 757 For further information contact: Jené Palmer (CGF: Director) - Cell: +27 (0)82 903 6757 / E-mail: [email protected] Terrance M. Booysen (CGF: Chief Executive Officer) - Cell: +27 (0)82 373 2249 / E-mail: [email protected] CGF Research Institute (Pty) Ltd - Tel: +27 (0)11 476 8261 / Web: www.cgfresearch.co.za Follow CGF on Twitter: @CGFResearch Click below to read more... Attached Files the-lure-of-short-termism-cgf-20250130.pdf 116.19 KB Related Articles TRUST IS TANKING (2025-02-10) “Trust is like blood pressure. It’s silent, vital to good health, and if abused it can be deadly.” - Frank Sonnenberg, author of Follow Your Consciences BOARDS THAT CREATE VALUE: CORPORATE GOVERNANCE FRAMEWORK® By Jene’ Palmer and reviewed by Terrance M. Booysen It has been painful to watch the likes of Lance Armstrong, Mike Tyson and Hansie Cronje sabotage their futures through poor decision-making. Similarly, many organisations and their boards have failed to demonstrate strong and responsible leadership qualities to motivate and drive their organisations to success. Awareness, decisiveness and accountability are some of the business leadership qualities required to achieve remarkable performances. The ‘buck’ stops with the board of directors and it is the board of directors who are ultimately held accountable for the success of the organisation. However, with the business landscape changing at an accelerating rate, risk management and decisive decision-making are becoming more challenging and business failures more prominent. A recent Harvard Business Review reports the failure rate for mergers and acquisitions to be between 70% and 90%. According to the United States Small Business Administration, only 44% of new businesses are still in existence after four years. Against this backdrop, how does a board create a sustainable organisation in what are clearly turbulent times? SUSTAINABILITY DEPENDS ON A STRONG GOVERNANCE FRAMEWORK Article by Terrance M. Booysen Corporate governance is one of the key elements many investors consider when they reflect upon the organisation’s success, as well as when deciding upon their investment choices. But when the organisation’s governance system shows signs of stress or failure, not only do astute investors understand the unsettling impact it has upon the organsation’s supply chain, they also become wary about its sustainability which may give rise to them re-considering to ‘weather the storm’ or ‘bail out’ so to speak. Over the years so much has been written about failures of corporate governance within organisations, including the financial, social and political consequences which are typically found in its trail. Yet in spite of numerous regulation to improve the overall conduct of organisations, including the various King Codes of Corporate Governance written in South Africa, even more organisations are becoming affected by poor governance. FAILED GOVERNANCE IN STATE ORGANISATIONS IS NOT A SIMPLE BAILOUT! (2023-08-10) Given the multiple governance failures seen across South Africa, and mostly within the public sector, there is no doubt that this fragile situation is a national disaster. The costs of these governance failures are far worse than the actual monetary losses reported to date. Earlier this year the Reserve Bank estimated that the country’s energy crisis alone is causing losses to the SA economy of approximately $51 million (approximately R942 million) every day. ACCOUNTABILITY IN GOVERNANCE: WHO IS RESPONSIBLE WHEN AN ORGANISATION FAILS TO COMPETE? (2025-01-21) Good governance is critical for an organisation’s ability to thrive in a competitive environment. It ensures that the organisation operates with transparency, efficiency and ethical integrity, while also enabling the executive management to execute strategic decisions effectively. However, when an organisation fails to adopt a robust digitised governance framework to bolster the board’s oversight capabilities, the consequences can be significant, especially if it cannot compete with its peers. TANGIBLE BENEFITS OF A CORPORATE GOVERNANCE FRAMEWORK® Article by Jene’ Palmer Forward-thinking organisations have realised that corporate governance does not merely fall into the portfolio of the Company Secretary. Indeed, the draft King IV Report on Corporate Governance for South Africa 2016 (‘King IV’), describes corporate governance as “the exercise of ethical and effective leadership by the governing body” of an organisation. Why then is corporate governance still viewed by many organisations as a process which increases bureaucracy and drives a ‘tick box’ exercise? Perhaps the explanation lies in not understanding and appreciating the value which can be unlocked by implementing a purpose-built Corporate Governance Framework® which is tailored to the organisation. Empirical research supports the fact that good corporate governance translates into tangible and sustainable benefits for the organisation. Some of these benefits are set out below. Comments are closed.