Rowan Williams, Barrack Obama, Gordon Brown and Nicolas Sarkozy have all called for reform of the City bonus culture in the past few days. They reflect widespread concern that the lessons of last year have not been learned by those widely seen as being a root cause of the economic crisis. But this is simply another indication of a deeper problem.
The focus on what Obama described rather alarmingly as “quick kills”’ drives corporate decision-making. Research a few years ago with over 400 executives found that “78% of our sample admits to sacrificing long-term value to smooth earnings”. Most of our key sustainability challenges are about creating long-term value through strategic long-term thinking. Companies generally benefit over a period of years, not within months. I recall a corporate change specialist saying it takes five years for real change to be embedded. So a change to City bonuses could do far more than make bankers behave more reasonably.
But will it really change anything?
Last week, a coalition of the great and the good in US corporate, civil and government life put their names behind a call for action on “restoring a long-term focus for boards, managers, and most particularly, shareholders—if not voluntarily, then by appropriate regulation”. The policy statement from the Aspen Institute Business & Society Program highlights three areas where action is needed. One is focused on the risk-taking and short-termism driven by the bonus culture, the other two point to greater systemic change relating to shareholders and investors.
So, while we all welcome the call for capping City excess, we have a long way to go before companies can really harness the power of investors to bring about sustainable change.