07 Jan 2021

Are European listed corporations short-termist?

Karel Lannoo / Jesper Lau Hansen / Apostolos Thomadakis

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A recent study prepared for the EU Commission has found that EU listed companies are increasingly focused on the short-term financial benefits of shareholders rather than long-term interests and sustainable value creation. It argues that the root causes of this behaviour lie within the regulatory framework and market practices (i.e. lack of a strategic perspective on sustainability, short-term focus of board-member mandates, and remuneration), and alleges that this will both undermine the investment capacity of firms and harm cash balances.

In response to this alleged short-termism, the EU Commission is considering a series of measures such as: harmonising directors’ duties and board composition; incentivising long-term shareholding; reducing quarterly reporting; and broadening reporting targets. The study’s conclusions were strongly contested by top academics in both the EU and the US – a challenge that was at first not matched by the relevant European professional associations.