[Annotated] Corporate short-termism is a frustratingly slippery idea

Firms are increasingly accused of failing to look ahead^[각주:1]. That is a misdiagnosis^[각주:2]. 

As America's economy has misfired^[각주:3] over the past decade, several grand theories^[각주:4] have emerged about what went wrong. Economists fret about^[각주:5] secular stagnation^[각주:6], debt hangovers^[각주:7] and whether demography^[각주:8] explains sluggish growth^[각주:9]. In American boardrooms^[각주:10], meanwhile, a widely held view^[각주:11] is that a dangerous short-termism^[각주:12] has taken hold^[각주:13]. This theory contends^[각주:14] that investors and executives have become myopic^[각주:15], leading firms to invest too little. Like many business ideas, short-termism fits^[각주:16] the experience of some individual business people. But as a theory about how the economy works it is too nebulous^[각주:17] to be much use.

People have always worried that financial markets cannot see beyond their noses^[각주:18]. In 1936 John Maynard Keynes noted that the horizon for^[각주:19] investors was "three months or a year hence^[각주:20]", even though they were trading the securities of firms and governments that would probably last for decades. Since the crisis of 2008-10, worries about short-termism have risen again. Bosses fret that if they miss quarterly earnings forecasts they will be fired. Activist hedge funds seeking a quick buck^[각주:21] are said to spook^[각주:22] big corporations. The average share changes hands^[각주:23] every 200 days for firms in the S&P 500 index. Terrified companies, the argument goes, no longer invest in their business and instead bribe their owners. For every dollar of operating cashflow^[각주:24] S&P 500 companies make, excluding financial firms, they spend 44 cents on capital investment^[각주:25] and 56 cents on buy-backs^[각주:26] and dividends. 

A new study by McKinsey drill deeper^[각주:27]. The consultancy^[각주:28] took about 600 firms and labelled some as^[각주:29] short-termist if they exhibited^[각주:30] five habits: investing relatively little, cutting costs to boost margins, initiating lots of buy-backs, booking sales^[각주:31] before customers pay and hitting quarterly^[각주:32] profit forecasts^[각주:33]. The study concludes that 73% of firms are short-termist. The elite 27% of firms are long-termist performed better, McKinsey reckons, seeing their profits increase by, on average, 36% more than short-term firms between 2001 and 2014. The methodology^[각주:34] is robust^[각주:35], and controls for the fact that some industries grow faster.

Surely^[각주:36] it is an open-and-shut^[각주:37] case? Not really. The theory of short-termism suffers from three difficulties: it isn't an accurate description^[각주:38] of what is happening across America's economy; it doesn't deal with the question of causality^[각주:39] and, last, it is a distraction from^[각주:40] the real difficulty. 

Take accurate first^[각주:41]. There are plenty of signs that short-termism is not a problem. Those timorous^[각주:42] chief executives serve longer than the average Roman emperor did: bosses departing in 2015 had an average of 11 years in office for S&P 500 firms, the highest figure for 13 years. Activist hedge funds own less than 1% of the stock market. The average share is traded many times because of a cohort of^[각주:43] high-frequency computerized^[각주:44] traders. But their churning^[각주:45] masks^[각주:46] the sharp rise of passive funds, which already own 13% of the market and which hold shares^[각주:47] indefinitely^[각주:48]. 

Supposedly^[각주:49] myopic markets often look far into the future^[각주:50]. The bond market^[각주:51] lends to^[각주:52] the government for 30 years for an interest rate of just 3%. Equity investors^[각주:53] place huge values on firms that won't make serious profits for years and years. Amazon is the world's fifth-most valuable firm, with a colossal^[각주:54] $400bn market capitalization^[각주:55]. About 75% of that value is justified by profits that are expected to be made a decade or more from now. It is probably the biggest bet in history on a company's long-term prospects.

Firms are not investing at weirdly low levels. Frightening figures on them starving themselves to splurge on^[각주:56] buy-backs are misleading^[각주:57]. Investment - capital spending plus research and development - is 9% of sales for S&P 500 firms, in line with the 25-year average (excluding financial companies). For the economy, private-sector capital spending, excluding housing, is at 12% of GDP, equal to^[각주:58] the average since 1945. On both measures investment is not that far from the frothy^[각주:59] levels seen in 2000, during the dotcom boom^[각주:60], the last time companies went wild^[각주:61]. Buy-backs are so high because profits are abnormally^[각주:62] high, which in turn may reflect^[각주:63] the rising level of concentration in most industries. Were firms to try to invest all their surplus funds^[각주:64], they would need almost to double investment to a reckless^[각주:65] 17% of sales. If Ford invested all its record cash flows, based on 2016 figures, it would double its plant in 30 months, an act of insanity in the car business.

What about the second flaw^[각주:66], causality? The McKinsey study makes clear that^[각주:67] this is hard to demonstrate. Do short-term firms become weak or do weak firms rationally adopt strategies^[각주:68] that might be judged short term? Almost all managers think that their firms have a right to grow, but in any industry it is natural that some firms stagnate^[각주:69] or decline just as some of their rivals expand. Shrinking firms should reduce costs and return cash to investors.

Consider IBM. Its sales have sunk back to^[각주:70] where they were in 1997. Over this period it has slashed costs^[각주:71] and ramped up^[각주:72] its margins, cut investment by half and halved^[각주:73] its number of shares through buy-backs. By one account these were myopic choices that caused IBM's decline^[각주:74]. By another they were tough decisions, made in response to^[각주:75] Big Blue's retreat as a new generation of technology firms took over leadership^[각주:76] of the industry. In the end, labeling IBM as long-term or short-term doesn't clarify^[각주:77] much.

From here to eternity 

The final flaw is that short-termism is a distraction. Many big firms wallow in^[각주:78] lucrative stagnation. Profits are abnormally high even as the cost of capital^[각주:79] is low. The theory of short-termism suggest that the solution is to prod^[각주:80] incumbent firms^[각주:81] to invest vast^[각주:82] amounts and insulate^[각주:83] their managers from investors. But there is another approach that gets to the root of the problem: incumbents' fat profits^[각주:84] need to fall. Competition policy needs to weaken the entrenched position^[각주:85] of established firms and help new. That would make the economy more dynamic, boost wages^[각주:86] and end the era of surplus profits^[각주:87] that are put to no use^[각주:88]. It's not a message many powerful CEOs are keen on^[각주:89].

1. look ahead (to something) ; (~까지) (앞일을) 내다보다 [본문으로]
2. misdiagnosis ; [명사] 오진 ;; misdiagnose [동사] ~ sth (as sth) (질병・문제를) 오진하다 [본문으로]
3. misfire ; [동사] 계획・농담이 의도하던 효과를 못 얻다, 불발에 그치다 [본문으로]
4. grand theory ; (사회학) 거대이론 [본문으로]
5. fret about ; …에 대해 초조해하다. [본문으로]
6. secular stagnation ; (경제활동의) 장기적 침체 [본문으로]
7. debt hangover ; 흐름상 "부채로인한 후유증" 정도의 의미 [본문으로]
8. demography ; [명사] (어느 사회의 일정 기간에 걸친) 인구 변동[동태]; (이러한 것을 연구하는) 인구 통계학 [본문으로]
9. sluggish growth ; 부진한, 더딘 성장 [본문으로]
10. boardroom ; [명사] 중역 회의실, 이사회실 [본문으로]
11. widely held view ; 널리 퍼져있는 견해 ;; long-held view ; 장기적 관점 [본문으로]
12. short-termism ; [명사] 단기적인 이익만 생각하는 주의[사고방식] [본문으로]
13. take hold ; (…을) 장악하다[사로잡다]; 대단히 강력해지다 [본문으로]
14. contend ; [동사] (격식) (특히 언쟁 중에) 주장하다 [본문으로]
15. myopic ; 2. 근시안적인 [본문으로]
16. fit ; 6. AGREE/MATCH | [진행형으로는 쓰이지 않음] 적절하다[들어맞다]; 적절하게[들어맞게] 하다 [본문으로]
17. nebulous ; [형용사] (격식) 흐릿한, 모호한 [본문으로]
18. see beyond one's nose ; (《조건·의문·부정문에서》) 선견지명이 있다, 현명하게 판단하다 [본문으로]
19. horizon ; 흐름상 "지속적인 투자를 하는 기간"을 의미 [본문으로]
20. a year hence ; 지금으로부터 1년 뒤 [본문으로]
21. quick buck ; (미·속어) 쉽게 번[벌리는] 돈, 불로소득, 부당하게 번 돈(fast buck) [본문으로]
22. spook ; (비격식 특히 美) (사람・동물을) 겁먹게 하다; 겁먹다 [본문으로]
23. change hands ; 주인이 바뀌다 [본문으로]
24. operating cashflow ; 경영상 현금 흐름 [본문으로]
25. capital investment ; [명사] 자본 출자, 설비 투자. [본문으로]
26. buy-back ; 자사주 매입 [본문으로]
27. drill deeper ; 흐름상 "깊이 파고 든다" 는 의미 [본문으로]
28. consultancy ; [명사] (전문적인 조언을 제공하는) 자문 회사 [본문으로]
29. label ; 2. ~ sb/sth (as) sth (특히 부당하게) 딱지[꼬리표]를 붙이다 [본문으로]
30. exhibit ; 2. [타동사][VN] (격식) (감정・특질 등을) 보이다[드러내다] [본문으로]
31. book sales ; 흐름상 "매출 사항들을 등록, 기록 하다" 라는 의미 [본문으로]
32. quarterly ; [형용사] 분기별의 [본문으로]
33. profit forecast ; (회계세무) 이익예상 [본문으로]
34. methodology ; [명사] pl. -ies (격식) 방법론 [본문으로]
35. robust ; 3. (체제・조직이) 탄탄한 [본문으로]
36. surely ; 1. 확실히, 분명히(강한 확신을 갖고 상대방의 동의를 구함을 나타냄) [본문으로]
37. open-and-shut ; [형용사] [구어] 명백한, 대번에 알 수 있는; 간단한 [본문으로]
38. accurate description ; 적확한 묘사 [본문으로]
39. causality ; [명사] (또한 caus・ation) (격식) 인과 관계 [본문으로]
40. a distraction from ; …에서의 기분전환. [본문으로]
41. take accurate first ; 첫시도를 정확성 있게 하라 [본문으로]
42. timorous ; [형용사] (격식 또는 문예체) 겁이 많은 ;; [|tɪmərəs] [본문으로]
43. cohort ; [명사] (전문 용어) (통계적으로 동일한 특색이나 행동 양식을 공유하는) 집단 [본문으로]
44. computerized ; [형용사] 컴퓨터화된. [본문으로]
45. churn ; 1. ~ (sth) (up) (물・흙탕물 등이[을]) 마구 휘돌다[휘젓다] [본문으로]
46. mask ; [타동사][VN] (감정・냄새・사실 등을) 가리다[감추다] [본문으로]
47. hold shares ; 주식을 보유하다 [본문으로]
48. indefinitely ; [부사] 무기한으로 [본문으로]
49. supposedly ; [부사] 추정상, 아마 [본문으로]
50. look far into the future ; 멀리 장래를 내다 본다. [본문으로]
51. bond market ; [명사] 채권 시장 [본문으로]
52. lend to ; 돈을 대주다 [본문으로]
53. equity investor ; 자산 투자자 [본문으로]
54. colossal ; [형용사] 거대한, 엄청난 [본문으로]
55. market capitalization ; (증권) 시가총액 [본문으로]
56. splurge ; [타,자동사][VN, V] ~ (sth) (on sth) (비격식) 돈을 물 쓰듯 쓰다 [본문으로]
57. misleading ; [형용사] 호도[오도]하는, 오해의 소지가 있는 [본문으로]
58. equal to ; …와 같은, …를 감당할 수 있는. [본문으로]
59. frothy ; 2. 허황된, 실속 없는 [본문으로]
60. dot-com boom (bubble) ; (business) A historic speculative bubble covering roughly 1997 – 2000. [본문으로]
61. go wild ; 미쳐 날뛰다; …에 미친 듯 열중하다; 격노하다 [본문으로]
62. abnormally ; [부사] 이상하게, 변태적으로 [본문으로]
63. reflect ; 3. [타동사][VN] (사물의 속성・사람의 태도・감정을) 나타내다[반영하다] [본문으로]
64. surplus fund ; [명사] 잉여금, 잉여자금 [본문으로]
65. reckless ; [형용사] 무모한, 신중하지 못한; 난폭한 [본문으로]
66. flaw ; [명사] ~ (in sth) (사물의) 결함 [본문으로]
67. make clear ; 명료하게 하다 [본문으로]
68. adopt ; 3. SUGGESTION | [타동사][VN] (정책 등을 투표로) 채택하다 [본문으로]
69. stagnate ; 1. 침체되다, 부진해지다 [본문으로]
70. sink back ; to move or fall backwards, or lie down, especially when you are feeling tired [본문으로]
71. slash ; 2. [흔히 수동태로,흔히 신문에서] 대폭 줄이다[낮추다] [본문으로]
72. ramp up ; [VERB] to increase or cause to increase [본문으로]
73. halve ; [동사] 반으로 줄다[줄이다] [본문으로]
74. decline ; [C , U] [주로 단수로] ~ (in sth) | ~ (of sth) (수・가치・품질 등의 지속적인) 감소[하락/축소] [본문으로]
75. in response to ; …에 응하여[답하여] [본문으로]
76. take over the leadership ; 지휘권을 잡다, 지도권을 얻다. [본문으로]
77. clarify ; 1. (격식) 명확하게 하다, 분명히 말하다 [본문으로]
78. wallow in ; …의 속에서 뒹굴다. [본문으로]
79. cost of capital ; 자본의 사용에 대해 부담해야할 비용 [본문으로]
80. prod ; 2. [타동사][VN] ~ sb (into sth/into doing sth) 재촉[촉구]하다 [본문으로]
81. incumbent firm ; 현직 회사 [본문으로]
82. vast ; [형용사] (범위・크기・양 등이) 어마어마한[방대한/막대한] [본문으로]
83. insulate ; 2. ~ sb/sth from/against sth (불쾌한 경험・영향으로부터) ~을 보호[격리]하다 [본문으로]
84. fat profit ; 많은 이득 [본문으로]
85. entrenched ; [형용사] 참호로 둘러싸인; 견고한, 확립된. [본문으로]
86. boost wage ; 임금을 인상하다 [본문으로]
87. surplus profit ; 잉여 이익 [본문으로]
88. put to use ; [동사] 이용하다, 사용하다 [본문으로]
89. be keen on ; …을 아주 좋아하는, …에 관심이 많은. [본문으로]