While companies may understand the need for a longerterm approach, how should they turn that insight into action? One critical approach is to be sure to adapt in anticipation of future threats. Two proponents of this are DSM, the Dutch nutrition group, and Umicore, the Belgian materials technology group. Seeing that environmental pressure could make their businesses unsustainable in the long-term, both have moved away in recent years from commodity operations with heavy environmental footprints to become nimble enterprises focused on science, technology and innovation.

It was not an easy transition for either company. For DSM, whose name originally stood for Dutch State Mines, it meant substantial divestments and acquisitions. In 2002 it sold its petrochemical business. Then it acquired Roche Vitamins and Fine Chemicals, which laid the foundation for the move into nutrition.

“What was interesting was to see the reflection around where to invest the proceeds of exit and the decision to reposition the company to something that a lot of people didn’t know much about,” says Geraldine Matchett, who is DSM’s co-CEO and CFO. “The ability to see that as the next big opportunity and move into it was very courageous and daring.”

For Umicore, the move out of mining and into materials and services for clean vehicles and recycling took a leap of faith – as well as a heavy investment in technology. “What’s behind our transformation is the acknowledgment that we don’t know what’s going to happen,” says Marc Grynberg, Umicore’s CEO. “So we need to be best prepared to seize new opportunities.”

This kind of transformation also requires an ability to hold your nerve, particularly since companies are not always rewarded by investors for every step, and can be punished for the pace at which innovation translates into returns. One way this is expressed is through the longevity of holdings. While a small number of Umicore’s shareholders are in the stock for the long-term, says Grynberg, the turnover of shares is equivalent to the company changing hands in the space of less than a year. “We are rewarded constantly by shareholders with longterm horizons,” says Grynberg, “while for a certain breed of investor, it is never fast enough.”

DSM has had to be resolute in the face of disapproval. “A lot of what we’ve done . . . we did despite market dynamics rather than helped by market dynamics,” says Matchett. She cites DSM’s 2010 decision to link half of its management board bonuses to environmental and social targets, which some investors said was a distraction from the pursuit of shareholder value. Matchett argues that such moves do in fact underpin value creation. “It doesn’t mean you’re going to do crazy stuff,” she says. “It just means you’re taking into account a broader set of factors, which makes you stronger for the long-term.”

Grynberg is unruffled by the fact that only a handful of Umicore stockholders share its long-term horizons. “I’ve always run the company in a relatively conservative manner from a financial point of view so we can perpetuate investment and research programmes regardless of short-term fluctuations in the economy,” he says. “That’s what it takes to counter short-term temptations.”

Some companies have decided to be explicit in how they demonstrate their long-termism credentials to investors. In late 2020, for example, Borg Warner, a Michigan producer of automotive parts that make vehicle engines cleaner, outlined to shareholders its strategy to adapt to a low-carbon economy. It was not a traditional report on investment return or a presentation of ESG performance. The company gave the presentation a simple title: The Next Decade+.

“For us it was important to convey the message to investors that we are running this company for the longterm,” says Frédéric Lissalde, the CEO. Long-termism, he says, is inseparable from ESG considerations: “It is the long-term thinking that leads to the obvious sustainability levers that we’ve had in the past but that are being formalised and streamlined.”

It is one thing to create presentations but another to ensure they guide all elements of a company’s operations. The mission statement of Enron, the US energy group hit by a corruption scandal in 2001, contained words such as “integrity” and “excellence”. Even when corporate leaders are genuinely committed to long-term investments, they encounter forces that push for immediate results, despite the chance that those investments may deliver significant returns in time.

“Think about the [Covid] vaccines that have come to market so fast,” says FCLTGlobal’s Williamson. “The reason they were able to come to market quickly was because those companies had invested in this for years prior.”

At Borg Warner, Lissalde attributes the ability to make long-term investments to the decentralised structure of his organisation. Leaving six presidents to worry about shorter-term activities, he explains, means he and his strategy board can concentrate on long-term goals. “It’s like an orchestra: everyone has their part,” he says. “Some people are absolutely focused on delivering the present. Some are in products where it’s tough to have a long-term focus, and some are here to deliver top margins and cash flow so others can position the company for the future.”

Borg Warner is not alone in viewing governance and organisational structure as being key to a longterm approach that underpins sustainable growth. At Novozymes, the Danish biotech company, the board governs sustainability, while in 2020 a new corporate sustainability committee was created that reports to the executive leadership and is responsible for integrating sustainability into business and innovation strategies.

Novozymes has tied one-fifth of executives’ long-term incentives to sustainability goals and many FT Moral Money readers express a hope that such pay strategies will become more common. So far, they remain the exception. A study by the Conference Board, an international thinktank, found in 2020 that just 604 companies in the Russell 3000 index tied compensation to any kind of ESG target.

The challenge is that linking remuneration to sustainability targets dictates that you have to define what is meant by success. Companies and investors can be forgiven for being perplexed by what many say is an “alphabet soup” of measurements and methodologies.

For years, remuneration committees’ yardstick of choice has been simple: quarterly earnings guidance. That has come at a cost, says Williamson. “If an executive or company says they’re going to make $1.27 to $1.30 [a share] next quarter, they feel an obligation to make that number. What you see time and again is that, if they’re not going to make it, they cut the things that are easy – usually people or R&D.”

She would like to see regulators encourage what she calls “cumulative reporting” in which each quarter would build on the next (three months, six months, nine months and then the full year), which would leave in place the transparency of regular reporting while avoiding the quarter-to-quarter comparisons that drive short-term behaviour.

The change is subtle, she admits, “but a lot of this is about the feedback cycle to the management team”.

In assessing the state of short-termism versus longtermism, there is no shortage of criticism aimed at the former, including from those at capitalism’s coalface. One FT Moral Money reader, Katherine Venice of Public Advocates for Optimizing Capitalism & Economic Justice, links the effects of short-termism — cuts to jobs, wages and benefits that are justified as “rationalisation” or “efficiency” — as driving inequality. “As a former institutional investment manager with three global investment management firms, I have worked inside this very system,” Venice writes. “No one admits this, yet it is so glaringly obvious.”

Even so — and despite pandemic pressures — cautious optimism is growing among investors and corporate leaders that longer-term philosophies are taking root. Compelling financial returns, pressure from investors and asset owners and disdain for quarterly guidance have combined to encourage long-term behaviour. Moreover, the consensus is that this is not only good for the bottom line but it also benefits people and the planet.

“I see the conversations as having shifted pretty significantly,” says Wellington Management’s Cromwell. “And we will watch to ensure that it is enduring and we don’t revert to previous behaviours.”

Before putting on rose-tinted glasses, it is worth remembering just how entrenched those behaviours are. With the average stock now held for a matter of months, compared with the 1960s when holdings were measured in years, reversing the tide of short-termism seen in recent decades will take a sustained effort.

There are no silver bullets. To shift business and capital markets in the right direction will require resistance against a host of short-term pressures. However, with the financial case looking clearer, this is a moment for companies and investors to move past the finger-pointing and to support each other in making long-term approaches the default rather than the exception.