This is the third 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: The problem for decision making is partly about short term thinking, but it seems like the problem might also partly be a result of the principle-agent problem. For example, Steve Jobs was a founder who could make tough calls and bet the company based on his vision of the future; whereas if you are a CEO taking a bonus then you might be very incentivised to ride the current business model and underinvest in new innovations.
So, one of the other broad areas that I deal with in my book is the whole concept that we might all believe that the free market is a wonderful thing, but of course there are all sorts of structures in place in the world in which we live which set up all sorts of vested interests in various different ways which then inhibit sensible decision making.
And I absolutely agree with the point that you make about CEOs being in a world where they are probably only going to last three years.
They’re trying to maximise their pay over that period of time because most CEOs of listed companies never get another job. And as a result, the people in those sorts of roles get lured into the belief that taking a short term approach will work really well for them.
Now the irony of course is that that doesn’t necessarily prove to be the case, and that the most successful CEOs are often those that have thought rather long term and have not been the people that have chased the quarterly reporting figures.
But that requires a very different sort of individual, who has the courage to say, look we actually need to go and do this big picture thing which will completely transform our company over the next five years. We’re going to go from a business where none of our value is, in Apple’s case, phones to where a huge part of the value is in the design of phones. And Apple doesn’t even make mobile phones, Foxconn does that.