Short-termism in the boardroom doesn’t just damage investors, it hurts us all, says Mike Tuffrey. Thankfully, the evidence – sometimes from surprising places – shows doing the right thing does pay off.
Here in London, voters are choosing a new mayor as I write. By the time you read this, we’ll know the outcome. During the campaign, the one issue all the candidates have agreed on is the lack of affordable homes – or rather the imbalance between restricted supply and escalating demand which is driving up the price of all forms of housing, whether purchased or rented.
The think-tank New Economics Foundation (where I’ve just joined the board of trustees) used the occasion of the Queen’s 90th birthday to show how the rise in UK house prices have outstripped average earnings twice over during her lifetime. There’s not much point in being 21,839% better off (yes really, in money terms) if you still can’t afford to put a roof over your head. In London, the trends are even more acute.
That makes it especially shocking to learn that UK housebuilding companies are not accelerating their construction programmes. Worse, they are paying out hundreds of millions in short term dividends and share buybacks, rather than investing for the long term. That’s according to another great think-tank, Tomorrow’s Company, whose Futures Project is about to publish the outcome of a year-long research project into how companies can be a force for good in the future.
This disinvestment isn’t unique to housebuilders. Office of National Statistics data show the UK corporate sector are net savers, to the tune of over £100 billion a year. This is a form of corporate austerity, at a time when governments are constraining their own spending and resorting to dubious experiments in quantitative easing just to keep the economy ticking over. Expect Tomorrow’s Company to issue a powerful call for long-termism in the board room and among investors, and for governments (my own hobby horse issue) to create a supportive framework.
In March I highlighted Larry Fink’s incisive message to company leaders to think long term, spoken with all the weight of Blackrock’s $4.6 trillion of assets under management. With voices on all sides of the debate saying much the same thing, it’s time to finally listen.
So I was tickled pink (excuse the pun) to see a report from Credit Suisse about LGBT+ diversity showing that the payback from doing the right thing can be more immediate. Its LGBT 270 index (constituents selected on various attributes of positive management towards LGBT diversity) outperformed comparable companies by up to 3% per annum over the past six years, depending on the benchmark.
Of course, nobody is saying that simply encouraging your employees to join local LGBT business networks (one of the attributes that Credit Suisse monitors) is going to transform your business prospects. But it makes intuitive sense that well managed companies – those that think towards the future, innovate, and are truly open to different perspectives – will do better, other things being equal.
Marketeers have long sought after the so-called pink pound of higher discretionary spending. Some US states are now missing out on inward investment over frankly bigoted laws as employers fear losing the talents of all their staff. Let’s hope London’s new mayor will take the argument to housebuilders about doing the right thing – in all our long term interests.
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