Cultural Dimensions of Leadership
February 12, 2025
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The term ’Psychology’ has been derived from two Greek words ’Psyche’ which means life and ’logos’ which means explanation. Psychology as a social science scientifically studies the mind and behaviour, which influences our day to day lives, professional well being and our relationships with family members and society. Psychology as a social science has evolved […]
International business ethics emerged quite late globally compared to the business ethics that came up in 1970’s. It was only in late 1990’s that the international business ethics came to the fore especially so after the economic developments that occurred on a global scale. In 1990’s many businesses from the developing countries expanded their operations […]
Publicly listed companies are expected to file and report quarterly results at the end of each three month cycle. These results are then released to the stock exchanges, in shareholder meetings, and published and forwarded to all relevant stakeholders.
In this way, corporates are expected to be transparent and keep all stakeholders up to date about the financial health of their firms.
While the intentions behind publishing quarterly results is well meaning as shareholders and investors apart from other stakeholders ought to know whether the corporates are doing fine and good, it also results in a form of pressure on the business leaders and the wider corporate stakeholders to continuously monitor the figures and other financial numbers for each quarter so as to ensure that shareholders and other stakeholders feel satisfied and indeed, happy about the actual state of the firm.
Moreover, as stock and equity prices tend to fluctuate based on such quarterly numbers, there is an added pressure on the business leaders and their firms to ensure that they are on top of the game, each quarter and each reporting cycle as investor wealth and by extension, their own shares in the firms can take a beating in case of adverse results.
Thus, the method of quarterly reporting creates a tyranny of sorts wherein corporates and their CEOs (Chief Executive Officers) are always on their toes.
While being alert and active to the needs of the stakeholders is always welcome, it is also the case that being active in real time mode makes the corporates worry more about how the financials would look at the end of each quarter, rather than investing in the future.
For instance, if a Capital Expansion or CapEx initiative that needs huge investments and would only start paying returns in the longer term has to be planned, leaders have to decide whether it is worth it based on the fundamentals rather than anything else.
However, for firms that are struggling and at the same time, can borrow monies to invest for the longer term, there is a choice between pleasing shareholders and the stock markets for the immediate future and thereby putting off longer term value creating investments.
Thus, the tyranny of the quarterly reporting means that some business leaders usually choose the short term gratification over longer term value creation.
This is where we caution business leaders against falling into Short Termism traps and instead, focus their energies and attentions to longer term initiatives.
Of course, it is easy to preach when one is not in the Hot Seat and hence, we agree that sometimes, business leaders have to necessarily be in hock to Short Termism.
Indeed, as can be seen in the way some long cherished firms such as Infosys have been struggling to deal with the dilemma of Short Termism versus Longer Term Value Creation, it is evident that it takes a lot to balance the competing and conflicting needs of all stakeholders.
For instance, Infosys, for a long time was praised for investing in the future and was appreciated for the way in which it could also please shareholders in the short term cycles.
However, this is no longer the case now wherein as the events of the last few years have shown that the non founder CEOs are focusing more on the Short Termism to the point where there are allegations of the “numbers being fudged”.
Therefore, it is a fact that unless there are resolute leaders with strong convictions and equally strong fortitude, it is unlikely that firms can avoid the Tyranny of the Quarterly Results.
Having said that, all too often, there is also a tendency of CEOs proclaiming that they are in for the long haul and hence, the Quarterly, Half Yearly, and the Annual results are secondary.
Before we laud such leaders, it is necessary to take a close look at the numbers and if needed, take the help of experts so that one is not fooled by the high sounding talk.
Indeed, firms such as the infamous Enron were saying that they were building the Next Generation Energy firms with any eye on the future only to be caught out later.
Thus, we are in no way advocating such supposedly idealistic notions without taking into account the numbers at each quarter.
Rather, it is our point that business leaders can build longer term value without losing sight of the need to be transparent and accountable in the shorter term.
At the same time, business leaders must also resist the temptation of falling into the 24/7 Breaking News Cycles wherein each step they take, big or small, is scrutinised and minutely dissected.
Therefore, what we suggest is to focus on the jobs without falling into the Short Termism trap and at the same time, not losing sight of the bigger picture.
Last, as can be seen from the discussion so far, there are pros and cons of both Short Termism and Longer Term orientation and the key to success is to find the balance between them.
Business leaders such as Anand Mahindra seem to have found their groove as far as striking this balance is concerned and hence, aspiring leaders can well do to study their strategies and adopt and adapt some of them.
To conclude, leadership is all about decision making with many variables and hence, business leaders must ensure that they have struck the right note.
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