Thursday, July 28, 2005

On Short-Termism, Corporate Culture, CSR and Tax Regimes

A friend draws my attention to the following article ( and asks, "Do you think his assessment of short-termism (and suggestion on tax regimes) has value, and any prospect of happening?".

I provide my answer below, as it may be of wider interest, but please note that the acronym "CSR" stands for "Corporate Social Responsibility":

Dear Jonathan

Thanks for drawing my attention to this

If rhetoric is part of a systematic attempt to create a corporate culture that is focused on values, then it can work, but only then

Very few companies have anything like a systematic and comprehensive approach to creating the right corporate culture

He is right in noting that, before the 1980s, corporations had a social purpose - though this was not because of what we would today call CSR, it was because both owners and workers were better integrated into communities. As a result of the impact of the theory of evolution combined with the impact of technology, we live very fragmented lives today, and rarely have what might be called a genuine community (by which I mean a community consisting of varied political persuasions, economic status, and family background) - usually, we live in stratified ghettoes of gated communities (if we are seriously rich), or in middle-class suburbs, or in working class areas, or in the inner city and so on (though gentrification complicates the picture a bit if one is speaking spatially, the principle holds in terms of the actual lived experience of the people concerned)

Many other things changed in the 80s (e.g. legislation worldwide removed the remaining restrictions on charging interest and took the situation back to what it was before Christians abolished usury in the West)

Short-termism: he is entirely right in observing that " the causes of corporate malfeasance lie in managers' roles as short-term "profit maximisers". The role of maximising short-term profit is another of the things that accelerated in the 80s - earlier, most people kept their money in savings accounts. The 80s saw the beginning of the mass move to shares (and bonds) and loans-against-mortgages....and, as capital flowed into corporations, the pressure on them grew to "perform" short-term

Though some of this short-termism has begun to be countered at some level by the rhetoric of CSR, mostly CSR remains merely rhetoric, with some marginal things being done here and there as a sop to the conscience and to CSR.

Basically, we have a worldwide culture of individual greed and its corporate equivalent: corporate short-termism.

His three key recommendations are that:

* Boards of directors should be elected for a reasonably long-
term: shareholders should be permitted to vote only every five years, rather than annually.

* Taxes should be applied on short-term share trading and tax-
forgiveness encouraged with regard to long-term investing. Corporate tax regimes should be designed to meet financial needs of particular industries.

* Companies should treat investments in staff as corporate assets rather than expenses. He said this would disincentivise lay-offs as a means of boosting profits")

These would go a long way towards ameliorating the situation.

However, the chances of these and other such recommendations being implemented depend on the vigour with which the global public understands the urgency of the issues and presses for such changes. At present, I would put such chances at no more than 50-50 over the next 5 years, though you never know how quickly the climate changes one way or the other

ENDS Sphere: Related Content

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