The Imaginary Problem of Corporate Short-Termism

Short-term thinking often makes sense for U.S. businesses, the economy and long-term employment.

By Mark J. Roe, WSJ. He is a professor at Harvard Law School.

"there’s also considerable evidence that stock markets don’t discourage long-term business plans. Institutional investors haven’t penalized companies for bumping up research-and-development spending, even though the payoff may be years down the road. Think of Amazon, Apple and Google, each of which spends billions on R&D. Oil companies make multi-decade investments in oil fields without the stock market impeding them."

"Some complain that today’s corporations aren’t investing cash back into their businesses to expand capacity. But that’s just what long-term investment should produce in a weak economy with below-normal capacity utilization. Firms should wait until they anticipate using current capacity well before expanding."

"Typical American shareholders, like Fidelity Investments, Vanguard and other mutual funds, haven’t shortened their holding period for stocks."

"Moreover, investors aren’t the only and maybe not even the most important place to look for short-term pressures: Managers and boards want good results on their watch, and CEOs shorten their management horizons as they reach the end of their tenure. Proposals to free managers further from investors by giving them more autonomy could thus worsen, not help, the problem."

"It makes no sense for brick-and-mortar retailers, say, to invest long-term in new stores if their sector is likely to have no future because it will soon become a channel for Internet selling."