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Why is Short-Termism a Problem?
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In today’s world, everything is based on instant gratification as a result of growing technology – and in turn, it has made people impatient to develop and work towards long-term goals, and as a result, much of the majority has opted for short-termism.
In fact, McKinsey conducted a study that revealed that a whopping 63% of respondents felt pressure to generate strong short-term profits.
Short-termism aligns with much of today’s instantaneous world, as it focuses on short-term goals as opposed to long-term projects.
In this article, we’ll explain what short-termism is, the negative impacts of short-termism, and how we can transition away from short-termism.
What is short-termism?
Short-termism refers to the notion of focusing on short-term goals, often at the cost of hindering one’s ability to achieve their long-term goals, success, and stability.
Our world has become a place which values fast fashion, excess consumerism, social media, grocery deliveries – and more immediate conveniences, which has helped contribute to the development and establishment of short-termism.
“ You can't grow long-term if you can't eat short-term. Anybody can manage short. Anybody can manage long. Balancing those two things is what management is. – (Jack Welch). ”
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Key Characteristics of Short-Termism
- Focus on Immediate Financial Returns – Instead of seeking investments that could help to build long-term and sustainable financial growth, short-termism will prioritise short-term profit gains – even if it’s at the expense of long-term stability and financial security.
- Pressure from Investors – Shareholders and executives may pressure companies for quicker financial returns, which could lead to companies capitulating to short-termism and choosing short-term stock prices over long-term growth.
- Reduced Investment in Innovation – Short-termism may result in companies reducing their budget for research and development in favor of short-term cost cutting – even if it limits potential future advancements and helping to curate a competitive edge.
- Quarterly Performance Over Annual Growth – Businesses which redirect their focus to short-term profit gain will begin to prioritise their quarterly goals over more long-term goals.
- Cost-Cutting at the Expense of Sustainability – Businesses may reduce long-term investments in employee development, infrastructure, or sustainability efforts to boost immediate profits.
- Economic Uncertainty – Short-termism contributes to market instability, as businesses will focus on making reactive over proactive decisions to ensure long-term business growth.
- Lower Long-Term Profitability – Studies illustrate how companies committed to long-term growth have a better chance of improving their finances over time in comparison to companies that subscribe to the ideals of short-termism.
Overall, short-termism is the concept of focusing on short-term goals rather than putting your time, energy, and resources into long-term stabilisation.
What are the differences between short-termism and long-termism?
The main difference between short-termism and long-termism is that short-termism focuses on what can be gained immediately, whereas long-termism is focused on long-term decision-making, strategy, and planning.
Think of when someone chooses an investment that will make them a lot of money in a short amount of time, as opposed to choosing a stock or bond with steady and stable growth. This highlights the main difference between short-termism and long-termism.
“ Human decision-making is complex. On our own, our tendency to yield to short-term temptations, and even to addictions, may be too strong for our rational, long-term planning. – (Peter Singer). ”
Here’s a breakdown of the differences between short-termism and long-termism:
Short-termism
Remember, short-termism values quick wins and prompt results at the expense of building long-term sustainability.
- Immediate Reward System – Unlike long-termism, which highlights the need for sustainable growth over time, short-termism emphasises the need for immediate profits and sales.
- Risky Business – Short-termism may provoke commoners to stray away from investments that could build long-term wealth in favor of “get-rich-quick” schemes.
- Outside Influence Over Decisions – As short-termism focuses on quarterly earnings and short-term KPIs, investors and stakeholders will often have a say in current financial plans.
- Lack of Long-Term Thinking – Short-termism doesn’t think about potential brand damage or greenwashing, and only thinks in the short-term in regards to finances – even if it can lead to instability later on.
Long-termism
Remember, long-termism focuses on sustainability and strategic planning, even if reaping the rewards will take longer.
- Future Growth Oriented – Innovation, talent development, and infrastructure are considered top priority as they can contribute to long-term financial growth.
- Accept Short-Term Losses – Long-termism views growth more like a spiral staircase than like a ladder, demonstrating how some initiatives may struggle over time before becoming lucrative.
- Business Relationships & Brand Reputation: Long-termism values customer loyalty and ethical business practices.
- Ripple-Effect Actions – Long-terms prides itself on the belief that small, but consistent efforts can lead to long-term success.
The table below will compare side by side the differences between short-termism and long-termism:
| Short-Termism | Long-Termism |
|---|---|
| Focuses on immediate financial results | Emphasises sustainable growth over time |
| Prioritises quarterly earnings and stock price | Invests in future innovation and stability |
| Often leads to cost-cutting and underinvestment | Encourages reinvestment in R&D and workforce |
| Decision-making driven by short-term incentives | Considers long-term stakeholder value |
| Higher risk of volatility and market fluctuations | More stable and resilient business model |
| Can lead to ethical and environmental compromises | Focuses on sustainability and corporate responsibility |
While short-termism can provide quick advantages, long-termism often leads to more sustainable and meaningful success.
What are the negative impacts of short-termism?
There are several negative impacts of short-termism, such as how it can hinder investments from their full potential, impact economic growth and innovation, and further exacerbate existing environmental and social issues.
Here’s a breakdown of the negative impacts of short-termism:
The Impact of Short-Term Thinking on Businesses and Investments
Since short-termism prioritises short-term objectives over long-term goals, it can have a severe impact on business performance and financial goals. For instance, it can cause companies to fixate on quarterly goals and cut back on funding for research and development (R&D), which could actually help a business expand its operations via innovation.
As a result, short-termism could actually be what puts a company out of business – as long-term objectives are imperative for a long-term, profitable business.
How Short-Termism Affects Economic Growth and Innovation
If our global economy is to be stunted by short-termism, it could result in reduced innovation and overall economic growth – as long-term investments will cease and make it more difficult to fund ongoing projects that could aid in sustainable development or technological advancement.
As a whole, this can impact economic development as new industries will struggle to get their feet off the ground – and existing ones will struggle to meet supply and demand without new search and technology.
The Role of Short-Termism in Environmental and Social Issues
Short-termism can also have an impact on existing environmental and social issues, as businesses and policymakers will be more driven by short-term, fiscal gains than by protecting the environment, health, or working rights – meaning that long-term sustainability or work inclusive initiatives may be neglected.
This could include ignoring the importance of efforts towards:
- Fighting against climate change
- DEI policies
- Various social responsibility programs
- Efforts to employ better air quality
As a result, putting aside these types of initiatives could ironically cause more long-term damage in terms of environmental degradation and social inequalities – seeing as the necessary investments and policy measures will be overlooked in favor of short-term economic gains.
What are some companies that have suffered from short-termism?
Several companies have already suffered from the consequences of short-termism, such as Boeing, General Electric, and AirBnB.
Think of when you’re sitting at a restaurant, and the meal is taking a little bit longer to prepare than you’d expect. Would you rather the meal be reheated as leftovers, or made from scratch and fresh, high quality ingredients? Most people prefer the longer wait if it means the meal will be better, and the same goes for those who adhere to the aspects of long-termism.
“ We can do things the cheap way, the simple way, for the short-term and without regard for the future. Or, we can make the extra effort, do the hard work, absorb the criticism and make decisions that will lead to a better future. – (Mike Rounds). ”
Here’s a breakdown of some well-known companies that have suffered from short-termism:
- Boeing – Known for its several in-flight incidents and accidents over the past few months, Boeing was discovered to have made several cost cuts in favor of short-term gains – which in the end, has done nothing but compromise on the quality of their aircraft and damage their brand reputation.
- General Electric – This electricity company has favored immediate financial metrics over its original intent to prioritise innovation, and in turn – General Electric has been underperforming as a result of their shift to focusing on short-term goals. Now, the company has lost its once competitive edge and is unable to adjust to the rapidly changing energy market under the Trump administration.
- Air BnB – Once known as the go-to service for people looking for both short and long-term rental stays, Air BnB has suffered since post-pandemic travel – such as how Airbnb experienced a sharp stock price decline as they received quarterly-focused advice that resulted in long-term financial challenges.
Overall, these examples demonstrate how even well-established companies can bear the consequences of short-termism – and that long-termism would have actually proven more efficacious for their business.
How can we shift away from short-termism?
If we’re going to battle climate change, ensure environmental safety, and social justice – it’s best that all businesses make an effort to shift away from short-termism.
However, it is important to note that businesses that have relied on short-termism mechanisms may struggle to adjust in the beginning – but the long-term benefits would be worthwhile.
Here’s how your company could work towards long-termism and away from short-termism:
- Adjust Current Compensation Incentives – Aligning executive pay with long-term performance as opposed to reaching short-term financial targets can help to avoid short-termism. For instance, instead of providing bonuses to sales employees for their sales each quarter – reward them once a year for their continued commitment to your company.
- Disclose ESG Factors – Working towards greater transparency, such as with ESG reporting, can help to demonstrate a company’s commitment to long-term sustainability and ethical impact.
- Attract Long-Term Oriented Investors – A lot of investors will be intrigued by short-term financial profits, meaning that seeking out institutional investors who prioritise long-term value can help to mitigate the effects of short-termism.
- Educate & Emphasise the Importance of Long-Termism – Providing your employees with trainings to understand the benefits of long-term and sustainable business building can help curate a company dedicated to long-lasting growth and development.
- Encourage Mindfulness Practices – This could include helping those involved in your business to make more informed decisions based on long-term results as opposed to the potential short-term benefits.
Overall, short-termism is a major problem for a variety of reasons – as it can have an impact on our environment, economy, and society. However, we can make an effort to employ the ideals of long-termism, stray away from short-termism, and work towards a more sustainable future.
What about Greenly?
If reading this article about bioplastic has inspired you to consider your company’s own carbon footprint, Greenly can help.
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. We offer a free demo for you to better understand our platform and all that it has to offer – including assistance on how to reduce emissions, optimise energy efficiency, and more to help you get started on your climate journey.
Learn more about Greenly’s carbon management platform here.
Sources
CFA Institute https://rpc.cfainstitute.org/policy/positions/short-termism
LinkedIn https://www.linkedin.com/pulse/corporate-short-termism-mohamed-yazid-naim-
McKinsey https://www.mckinsey.com/featured-insights/long-term-capitalism/where-companies-with-a-long-term-view-outperform-their-peers
University of Cambridge https://www.cisl.cam.ac.uk/business-action/sustainable-finance/investment-leaders-group/promoting-long-termism
Financial Times https://www.ft.com/content/95008728-986c-4dcf-95aa-16fbb4ef4bfd
Quotation https://quotation.io/quote/can-things-cheap-way-simple-way-short-short-term
AJ Bell Invest Centre https://www.investcentre.co.uk/articles/problem-short-termism-investing
Skift https://skift.com/2025/03/14/short-term-rentals-airbnbs-dominance-and-bookings-gains-in-1-chart/
Yahoo Finance https://finance.yahoo.com/news/airbnb-falls-5-buy-sell-171900757.html
Integrated Reporting https://integratedreporting.ifrs.org/wp-content/uploads/2017/03/SPLong-TermismversusShort-termism.pdf
IMD Business School https://www.imd.org/ibyimd/finance/how-to-shift-managers-focus-from-short-term-profit-to-long-term-social-impact/