Martyn in Europe

Short Termism is an accusation aimed at the financial institutions and is directed towards their short-term expectations of the companies that they finance; we know that, we have known that for years.

The virus of short termitis is all-pervasive in the USA, the UK has embraced and modified this myopic and short-term culture in many aspects of society, including financial services, telecoms, and even more importantly, government and opposition. This Short Termism in the UK has been prevalent since the early eighties, and some people think that this is one reason why countries like Germany and Japan have left the UK in the dust, relatively speaking.

However, to pretend that Short Termism is simply linked to the bonus culture is a big mistake. Which came first, the Short Termism or the Bonuses?

For example, this increasing focus on short term metrics is a proxy for a short-term focus. What does this mean? Corporations have developed the habit of making short term projections on growth in order to stimulate investment. If companies hit those short term targets, and visibly demonstrate short term improvements,  then those people will get rewarded (over compensated), if not, the very same people could find themselves looking for work elsewhere. The other problem is short term stock speculation investments and longer term institutional investments, neither of these groups typically has any interest in the companies they buy shares in, other than short term performance. Added to this is the very short term behavior of hedge funds and private equity firms, who are not the prime culprits, but passively encourage the large banks to copy their short term strategies, which results in more short termitis and massive systemic risk.    

I know many people will not like this, and will put it down to some lefty delusion, but the problems of short termitis reflect the fundamental problems of capitalism. For capitalism to work it requires companies, governments and countries to crash and burn from time to time.
 
Simply stated, short termitis affects the performance of corporations, it influences the competitiveness and growth of economies, and it skews investor returns. When investors become stakeholders, and speculation is discouraged through financial penalties, then investors themselves can limit the bonus culture. Warren Buffet knows a thing or two about this.