Notwithstanding the attention corporate reputation gets as a concept, why it is valued, what it requires, and what is incompatible with a good reputation are given surprisingly short shrift. Institutional investors are increasingly pressuring companies to care about more than short-term profits, and indeed, to care about their social purpose, which is often at least arguably related to long-term profitability. There is a more general movement encouraging corporations to take into account corporate social responsibility and ESG (environmental, sustainability, and governance) concerns. There are also forces, notably after the 2008 financial crisis, pushing companies to take ethics and culture more … Read more
A hot topic in corporate governance is the so-called short-termism of publicly held companies. In response to actual and anticipated pressure from activist hedge funds, companies are, some say, focusing too much on short-term gains by, for instance, shunning research and development. This behavior undermines long-term value at the expense of shareholders and society, the argument goes. The opposing view is that the pressure to perform is necessary to keep management on its toes. Both camps seem to have a point.
The world of corporate governance is undergoing two intense, inter-related debates. One is a debate as to whether profit-maximization in the short term is really different from profit-maximization in the long term, and if so whether American corporations are currently too short-termist. The second debate is whether shareholder profit maximization is and should be the exclusive goal for corporate managers. The debates are inter-related because corporations focused on long term rather than short term profits are likely to more fully take into account the interests of other stakeholders, although even a robust focus on the long term will not fully … Read more