Many CEOs steer their company by the lodestone of annual targets. They are judged on the basis of this very short-term horizon, which focuses on achieving shareholder value. Most of the decisions taken within the company, especially at management level, will be made in the light of this short-term annual target. This principle need not necessarily prove negative for the company, however, except in the kind of situations (more common than we think) where the decision comes down to a choice between two positions: one that focuses on achieving a short-term (annual) result, or another that sets a medium-term (two to three years) objective that will consolidate the company’s future.
Such short-term steering also penalizes two other key players in the company’s ecosystem: employees and customers! Paradoxically, it may also penalize shareholders looking for a sustainable investment over time.
Over the last ten years, we have had the pleasure of working with a number of family-owned mid-tier companies and, in my view, there is much that CEOs can learn from their methods of steering their businesses. These are companies whose main objective is often to pass on the business to the next generation under the best possible circumstances. With this aim in mind, steering and decision-making are invariably, and quite naturally, geared towards the interests of the company over the medium term, even when this may occasionally result in falling short of annual targets.
In the light of the average “life-span” of a CEO in a company, it is difficult to ask them to look 10, 20 or even 30 years ahead, but perhaps all those involved in the company would benefit if businesses operated on a horizon of two or three years ahead. I can already hear the voices telling me that companies already do this, by means of a Medium Term Plan (MTP), updated on an annual basis.
But I am not talking about year by year steering; I am talking about regular steering, on a monthly basis, capable of making the connection between short-term actions and their impact on annual targets, and underlying actions in pursuit of improvements, change or transformation, that will have an impact on medium-term objectives in two to three years.
Steering execution by combining these two types of action is manifestly the responsibility of the CEO and the management team.
In conclusion, it is my belief that all the stakeholders (shareholders, employees, customers) would stand to gain if businesses were indeed steered (by the CEO and the management team) by the light of both short-term AND medium-term objectives, as a means of ensuring the long-term future of the company. It is by the ability to (continuously) manage these two time-scales that a CEO’s performance should be measured.