Global directors say “no” to short-termism

The expanding Global Network of Director Institutes (GNDI) has called on boards of directors to abandon short-term perspectives in favour of longer-term considerations that will produce more sustainable outcomes.

The GNDI, which now consists of 13 of the world’s most influential governance groups and represents more than 100,000 company directors worldwide, argues in a new paper that excessive short-termism may lead to reduced shareholder value and returns over the longer-term as result of the following:

  • Missed opportunities to create enduring value for a company and therefore its shareholders.
  • Under-investment in value-creating opportunities such as research and development.
  • The rejection of long-term projects, or projects with high build or sunk costs, including infrastructure and high-tech projects.

“Directors should consider developing and disclosing a clear framework for managing long-term value creation and curbing excessive short-termism,” says GNDI chairman John H C Colvin FAICD.

The GNDI paper sets out some suggested practices, which extend beyond minimum regulatory requirements, that boards of listed companies could adopt to help foster longer-term value creation. These include:

  • Setting forward-looking strategic goals and implementation plans that are properly monitored.
  • Reporting practices that disclose short-term performance in the context of medium and long-term goals and strategies.
  • Executive remuneration that is based on long-term performance measures to avoid excessive weighting of short-term remuneration.

GNDI, founded in 2012, now brings together 13 member-based director associations from around the world after peak governance bodies in Hong Kong, Singapore and Mauritius recently joined its ranks, further bolstering its capacity to advocate on behalf of the global directors community.

“The growth of our network is recognition of the role that good governance plays in driving sustainable business performance for the benefit of shareholders, the economy and society in all countries,” says Colvin, who is also CEO of the Australian Institute of Company Directors.

“In its short life, GNDI has made an important contribution to global discussions around issues such as boardroom diversity, audit quality and shareholder communications. As our membership continues to grow, we will be able to exert more influence in the policy debate that affects global business.

“Our charter also requires us to explore emerging issues that have a global impact on corporate governance and to educate key influencers about the benefits of exemplary leadership in the boardroom.”

GNDI membership also includes director institutes in Australia, Brazil, Canada, Europe, Hong Kong, Malaysia, Mauritius, New Zealand, Singapore, South Africa, Thailand, the UK and the US.