Corporate America has a problem. The short term focus on beating the street by a penny has created a culture where most large companies only focus on the next two quarters out. No thought is put into longer term plans. The majority of the effort is put into meeting short term projections so that Wall Street will reward top executives with big stock swings. These swings are what jack up executive bonuses (including cash bonuses). This mentality creates short term gains at the expense of long term, sustainable growth.
The recent near collapse of the US stock market shows how this short term mentality rears it’s ugly head. When the focus is only on the next two quarters out, short cuts are taken. Normally rational people will game the results to boost their bonuses. This creates the desire for better and better results until it collapses. It’s the ultimate Ponzi scheme.
So, how do you fix something like this? It starts with instilling ethics into business and redefining what success really is. Ethics reform starts in the class room. How we teach our next wave of business students matters. Some students over at Harvard took a great first step. They created the MBA Oath which is akin to the oaths that doctors or IEEE engineers take. This oath is a great step towards defining what it means to do business responsibly.