Sustainable Growth at Risk Through Excessive Short-Termism

The Business Council of Australia has called on federal and state governments and the private sector to consider a range of measures to counteract excessive short-termism in Australia.

The recommendations are part of a BCA paper Beyond the Horizon: Short-Termism in Australia, which examines the prevalence and types of short-termism in Australia’s public and private sectors.

The Paper, which is part of the BCA’s 2004 Annual Review released this week, highlights a number of areas where short-termism has the potential to create major problems in sustaining growth. These include:

  • The lack of policies to address a growing shortfall in superannuation savings to fund an ageing population.
  • The satisfaction of immediate electoral wants at the expense of longer-term needs.
  • Excessive short-term focused regulation on companies.
  • Acute community pressure on company CEOs to perform within ever-shorter timeframes – or exit their posts.

Beyond the Horizon incorporates the views of senior Australian business leaders. Those interviewed expressed concerns that an excessive focus on short-term returns in the market was creating a climate of risk aversion and less focus on long-term sustainable value creation.

The paper highlights that longer tenure among CEOs is associated with greater value creation for the companies they lead.

Research last year showed that average tenure among CEOs in Australia was 4.4 years – less than half the average of their overseas counterparts.

BCA President Mr Hugh Morgan said that paper’s findings were cause for concern.

“Australia is running down its corporate leadership assets at a comparatively faster rate than many of its competitors.

“Meanwhile, public policy short-termism risks undermining the quality – and outcomes – of government decision-making, which also has ramifications for the community at large,” he said.

The study calls for the federal government to consider a range of measures to counteract short-termism in public policy including:

  • improving the effectiveness of regulatory impact statements to assess the long-term cost impact of new regulation;
  • removing the triple taxation on superannuation; and
  • extending the electoral cycle to four years to give more policy certainty.

The BCA developed the paper to raise awareness of the pitfalls of short-termism and to promote the need for long-term strategic thinking in the corporate and public sectors. It is targeted at companies, investors, policy makers and others across the community spectrum.

The Business Council plans to incorporate the paper’s recommendations into the work program of its standing Task Forces and in particular its Sustainable Growth Task Force.

Beyond the Horizon: Short-Termism in Australia