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This is the first instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW
Tom: Nigel, I had intended to ask you questions about Pottinger and your recruitment process but I was reading up on what you’ve been doing and I’d be interested to instead talk to you about your book, “The Long Term Starts Tomorrow”.
Nigel Lake: Those two things are somewhat related, but I’m very happy to do that. Just fire away with anything you wanted to ask. Let’s get into it.
Tom: A lot of tech companies were invented by college students in dorm rooms and the Internet poses a continuing threat to the business models of many established companies. From what I understand your book is really about innovation and the ability to make short term decisions that are going to stand the test of time. Is that an accurate characterisation?
Nigel Lake: Yeah, it’s an interesting thing, it kind of goes deeper than that, and I’ll give you a bit of context and then you’ll understand why I’ve written it the way I’ve written it.
There is lots of evidence that the way that people make decisions in the business world doesn’t work especially well, and a simple example is all these crazy young kids who created trillions of dollars of value, and the old guys surrounded by lots of advisors didn’t.
If you peel it back, what are the things that are going wrong fundamentally with decision making?
One of the deep problems is that the whole architecture that we live in for decision making focuses people’s minds on the short term.
You see that in a qualitative sense in terms of the reporting cycle and in terms of what analysts want to see and what CEOs then go and do. But you also see it in a very quantitative sense in the world of discounted cash flow models and the whole economic architecture which I describe as a kind of cult of economic rationalism.
People have picked up that way of doing things which came out of the 1950’s and early 1960’s, and in fact some of it goes back to the 19th century.
No one has really done anything different since.
Nobody has stopped to think about the fact that the pure mathematics of those models drives you to focus on the first five to ten years and encourages you to ignore everything after that.
Many of the great successes and great failures over that period came about because people precisely ignored what would happen a little bit further down the road.
At Pottinger we do a whole bunch of work around infrastructure, for example, and one of the fundamental problems most major economies have is that they need to rebuild crumbling infrastructure and build new infrastructure.
They struggle to justify the costs and returns that they are going to get, and part of the reason is that people are trying to build 100 or 200 year assets on the basis that it should pay for itself in 30 or 40 years.
It’s just not going to work.