How to shift managers’ focus from short-term profit to long-term social impact

An ongoing challenge for leaders across industries, countries and cultures is the relentless focus on short-term results. This pressure for immediate performance can trap companies in a vicious circle in which long-term planning and sustainable growth take a back seat.

Daily demands and constant performance metrics often keep leaders in a narrow, short-term perspective. Few leaders cultivate the broader vision needed to make their companies successful over the next five or 10 years, leaving long-term goals overshadowed by the urgency of immediate returns.

While the negative impact of this short-term focus on financial performance is widely recognized, its impact on corporate social performance (CSP), which includes a company’s environmental, social and governance (ESG) initiatives, is still limited understood.

One of the biggest challenges in addressing this problem has been measuring executive short-termism, which is based on biases that are often difficult to detect. The analysis of profit manipulation, high employee turnover and a lack of long-term vision in communication only provides an incomplete overview. Our study overcame these shortcomings by analyzing the language used in the annual 10-K reports of 1,665 U.S. companies from 2000 to 2012. This allowed us to gain insight into how managers think. We were able to identify the main drivers that influenced company decision-making.

Our analysis found that companies led by short-term managers tend to invest less in social and environmental initiatives. Instead, they often used corporate social performance (CSP) as an impression management tool while reducing areas that did not directly contribute to immediate profits.