Focusing Capital on the Long Term

Since the financial crisis of 2008, there has been widespread agreement on the need for public companies to build value for the long term. Nonetheless, because of pressure from financial markets, a detrimental focus on short-term performance persists. Reversing this trend, the authors say, depends on the leadership of major asset owners such as pension funds, insurance firms, and mutual funds. They should act by taking four practical, proven steps: 1 Define long-term objectives and risk appetite, and invest accordingly. Major asset owners should set a multiyear time frame for creating value, decide how much underperformance they can tolerate in the short term, and then align their investments with this agenda. 2 Practice engagement and active ownership. Big investors should cultivate ongoing relationships with the companies they invest in, collaborating with management to optimize corporate strategy and governance. 3 Demand long-term metrics from companies to improve investment decision making. Rather than focusing on quarterly financial statements, investors should seek to obtain and analyze data that indicate a company's long-term health. 4 Structure institutional governance to support a long-term approach. Big investors must have competent board members committed to investing for the long term, as well as policies and mechanisms to translate this philosophy into action.

• Long term financing
• Capital investments
• Corporate governance
• Financial analysis