Monday, April 11, 2011

Saving Capitalism and Sunday Dinner

Whatever happened to taking our time? For those of us old enough to remember, a time once existed when virtually all stores were closed on Sundays. Yes, all shopping happened the rest of the week. Sundays were reserved for family and friends; some of us even ate dinner at an earlier hour, and we didn’t dare be late for it, either. Of course, this was a time when computers were the size of tanks and most of us only got three channels on our television sets. 

Life moved at a slower pace.

Now, life moves in nanoseconds. Is it possible to connect today’s freneticism to Dominic Barton’s argument in the Harvard Business Review that for capitalism to thrive, the business world, among other improvements, must start thinking in the long-term –- and that means not in terms of a few months, but in terms of many years?

Mr. Barton’s concern is that unless business leaders fix those problems that were exposed during the Great Recession, Washington and the public will do it for them. 

“There is growing concern that if the fundamental issues revealed in the crisis remain unaddressed and the system fails again, the social contract between the capitalist system and the citizenry may truly rupture, with unpredictable but severely damaging results,” writes Mr. Barton, the global managing director of McKinsey and Company.
He advocates:
  • Adopting a long-term view for success –- at least five years;
  • Convincing typical stakeholders that also serving atypical stakeholders –- customers, creditors, the environment –- is essential to success, and;
  • Converting disengaged board members into engaged, proactive members.
He makes a lot of sense, but we fear his words are too scary for some.
“Analysts and investors are focused on the short term,” he quotes one executive as saying. “They believe social initiatives don’t create value in the near term.” In other words, Wall Street may not like it.

A couple of statistics from Mr. Barton’s story:
  • In 1995, the average CEO stayed on the job for 10 years; now, that tenure has dropped to six years. 
  • In the 1970s, U.S. equities were held for an average of about seven years; now it’s about seven months. 
  • "Hyper-speed” traders account for 70% of all U.S. equities trading. 
When McKinsey and Company broke down the value expectations buried in share prices, it discovered that 70% to 90% of a company’s value was connected to cash flows that were anticipated in at least another three years. If most companies’ worth relies on results that far out, but its leaders are concerned with what’s reportable in the next quarter, then capitalism -- and by default our American culture -- is in trouble, Mr. Barton says.

We think capitalism, Sunday dinner, and a whole host of other valuable traditions  are in trouble.  Maybe we need to focus on what is important and slow down.  

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