In the Book Excerpt from the most recent McKinsey Quarterly, authors Dominic Barton and Mark Wiseman summarize the thoughts of several contributors to the collection of essays Perspectives on the Long-term (FCLT, March, 2015). Of particular interest are the thoughts of Nitin Nohria, dean of the Harvard Business School, and author Nicholas Carr, who address interesting psychological and technological barriers to taking a long-term perspective in business. In addition, Charles Tilley, CIMA chief executive, discusses the research conducted on the contribution of Integrated Reporting.
Nohria identifies a set of three cognitive forces that he considers to be as important as the market demands and incentive structures that are the most often cited factors driving short-termism:
- The cognitive asymmetry between the uncertainty of long-term actions and the certainty of short-term actions (the need for certainty on the part of leaders themselves);
- The need to maintain ongoing credibility to ensure their license to lead (leaders need followers who also may have shorter time horizons); and
- The desire to leave a legacy (rather than be forgotten).
Carr cites a speech by Nobel Laureate Herbert Simon given in 1969, when the internet was in its infancy, who posited that a glut of information would produce a dearth of attention. Carr argues that, when it comes to thinking, we are trading breadth for depth, and losing the ability to think about the long-term implications of long-term problems.
Tilley, more closely aligned with the organizational and financial implications, cites research on the contribution of Integrated Reporting to taking a more long-term view of value creation. Tilley cites research conducted by George Serafeim, from the Harvard Business School on the relationship between Integrated Reporting and long-term investor bases, and research by Tomorrow’s Company on the value of Integrated Reporting beyond its role as a reporting framework. The Tomorrow’s Company research highlights how Integrated Reporting helps companies better connect the drivers of value to their strategy, and provide a synthesis for how value is created by their company in the short, medium and long term.
The management accounting role in helping companies create sustainable value over the long-term is captured by the Global Management Accounting Principles, launched by CIMA and the AICPA in late 2014. The document Global Management Accounting Principles: Effective management accounting: Improving decisions and building successful organizations identifies four headline Principles of management accounting:
- Communication provides insight that is influential (communication is tailored to facilitate better decisions)
- Information is relevant (also the best available, reliable and accessible, as well as contextual)
- Impact on value is analyzed (actions are prioritized by their anticipated impact on outcomes)
- Stewardship builds trust (accountability and credibility underpinned by ethics and integrity contribute to sustainability)
The document also applies the Principles to the development, execution and refinement of strategy, as well as to the key activities of the management accounting function.
For more on the Global Management Accounting Principles, visit: http://www.cgma.org/Resources/Reports/Pages/GlobalManagementAccountingPrinciples.aspx
For an introduction to Integrated Reporting <IR>, visit: http://www.cgma.org/resources/videos/pages/introduction-to-integrated-reporting.aspx