Contracts with the Future
Time also demands its compromises, as we try to balance the demands of the present and the future. Short-termism is an ugly word for a tough dilemma. Businesses are accused of it, governments are plagued by it, none of us can escape it in our own lives. We all live with the knowledge that the things which we want most, and which are best for us - health, affection, long life - require us to give up immediate delights or to do things we'd rather not do. Personal short-termism damages our health. We know, in other words, that this sort of personal compromise is one way of dealing with the paradox that most of the things we enjoy are bad for us.
The dilemma is this - to what extent should you short-change or compromise the present in order to benefit the future? All investment involves taking something today to improve tomorrow: It only makes sense to do that if you believe in, or want, what tomorrow may bring. It is always another compromise. To what extent are we prepared to curb our bad environmental habits to ensure a cleaner, safer world for our grandchildren, a world which we may not live long enough to enjoy? To what extent will we curb our own behavior if others do not do likewise? Will the tragedy of the commons be played out on a global scale or will we adjust our short-term behavior for a greater common cause, to make life better for people we shall never meet? We will only do it, I believe, if we can look beyond the grave, if we can accept that there are some things that are more important than ourselves, and longer lasting.
At a more personal level, young dual-career couples struggle with this issue of common cause and compromise as they try to decide whether or when to start a family. The sacrifices in the present will be considerable, a loss of income, a change of life-style, an altered relationship. The commitment of both of them to a new future is critical, if they are to make the necessary compromises to start another family. It is, however, an impossible decision to make if they want to preserve their present while growing that future. They have to start by understanding that compromise is essential to most progress, but that voluntary compromise is only possible if there is a common cause, a cause greater than oneself, and a trust in the other. When compromise goes out of fashion among the young, so do babies.
In a business, to increase a dividend is to reduce the sums available for new capital spending. If the shareholders are not interested in the future of the company because they can sell their shares tomorrow, they will want to see dividends, not retained profits, in the accounts. The managers, on the other hand, with their own futures linked to that of the business, will want to invest as much as they can in that future. There can often be a conflict of priorities.
If there is no common cause, no agreement on the longer-term goal, the more pressing priority, or the most powerful party, will win out. If we think that we need shareholders more than managers, as we seem to, the shareholders will win. Compromise will be enforced, not voluntary - a British contract rather than a Chinese one. Only if the shareholders are also locked into the future of the business, as shareholders more often are in Japan and Germany, will they have common cause with the managers and be prepared to forego some present gains for future profits. As long, that is, as that common cause seems a worthwhile one. In the end, for the long term to prevail over the short term, we must want what the long term promises. Where there is no vision, there you find short-termism, for then there is no reason to compromise today for an unknown tomorrow.
The concept of stock options, common in Britain and America, is an attempt to make common cause between senior managers and the shareholders. The thinking is that they will tie the managers' compensation more closely to the longer-term performance of the company. It does, but it is because the managers can only make use of those options after a period of years or if the share price goes higher than the price of the options. If all shareholders were treated this way, they would look at the company a little differently. It would significantly alter the balance between the present and the future and so make compromise easier.
From The Age of Paradox, Charles Handy, Harvard Business School Press, 1995
The dilemma is this - to what extent should you short-change or compromise the present in order to benefit the future? All investment involves taking something today to improve tomorrow: It only makes sense to do that if you believe in, or want, what tomorrow may bring. It is always another compromise. To what extent are we prepared to curb our bad environmental habits to ensure a cleaner, safer world for our grandchildren, a world which we may not live long enough to enjoy? To what extent will we curb our own behavior if others do not do likewise? Will the tragedy of the commons be played out on a global scale or will we adjust our short-term behavior for a greater common cause, to make life better for people we shall never meet? We will only do it, I believe, if we can look beyond the grave, if we can accept that there are some things that are more important than ourselves, and longer lasting.
At a more personal level, young dual-career couples struggle with this issue of common cause and compromise as they try to decide whether or when to start a family. The sacrifices in the present will be considerable, a loss of income, a change of life-style, an altered relationship. The commitment of both of them to a new future is critical, if they are to make the necessary compromises to start another family. It is, however, an impossible decision to make if they want to preserve their present while growing that future. They have to start by understanding that compromise is essential to most progress, but that voluntary compromise is only possible if there is a common cause, a cause greater than oneself, and a trust in the other. When compromise goes out of fashion among the young, so do babies.
In a business, to increase a dividend is to reduce the sums available for new capital spending. If the shareholders are not interested in the future of the company because they can sell their shares tomorrow, they will want to see dividends, not retained profits, in the accounts. The managers, on the other hand, with their own futures linked to that of the business, will want to invest as much as they can in that future. There can often be a conflict of priorities.
If there is no common cause, no agreement on the longer-term goal, the more pressing priority, or the most powerful party, will win out. If we think that we need shareholders more than managers, as we seem to, the shareholders will win. Compromise will be enforced, not voluntary - a British contract rather than a Chinese one. Only if the shareholders are also locked into the future of the business, as shareholders more often are in Japan and Germany, will they have common cause with the managers and be prepared to forego some present gains for future profits. As long, that is, as that common cause seems a worthwhile one. In the end, for the long term to prevail over the short term, we must want what the long term promises. Where there is no vision, there you find short-termism, for then there is no reason to compromise today for an unknown tomorrow.
The concept of stock options, common in Britain and America, is an attempt to make common cause between senior managers and the shareholders. The thinking is that they will tie the managers' compensation more closely to the longer-term performance of the company. It does, but it is because the managers can only make use of those options after a period of years or if the share price goes higher than the price of the options. If all shareholders were treated this way, they would look at the company a little differently. It would significantly alter the balance between the present and the future and so make compromise easier.
From The Age of Paradox, Charles Handy, Harvard Business School Press, 1995
posted by Paul Schumann | 10:41 AM
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