Hi, I'm John Byrd and in this lecture I want to talk about three topics related to long term thinking. First, I want to discuss the problem with short term thinking. Then, we'll talk about how long-term thinking is different and better. And finally, I want to introduce the idea of intergenerational equity or fairness to the future. So let's begin. Companies are often criticized for having very short-term horizons. That is, decisions are based on how those decisions will affect stock price next quarter or even next week. Some people call this myopia, or shortsightedness. And it's shortsighted because some decisions that look good in the next few months might not help the company in the long term. In fact, they can do the company harm. Let me give you a couple examples. There's some evidence that as CEOs get close to retirement that they reduce spending on research and development so profits are higher. Now this may result in higher pay for the CEO but it doesn't position the company for success in the future. Another example is a company that doesn't deal very fairly with employees or suppliers or customers. In the short run, that may save a little bit of money. But over time the resentment that the company generates with those stakeholders can be costly. Suppose that you postpone paying a supplier. You keep saying the check is in the mail. But it never is. In the future, you may need raw materials in a hurry. And that supplier may not give you special treatment or they may even close your account. It's the same with employees. If employees don't feel like they're being treated fairly, they may look for another job or not be as innovative and productive as they could be. The ones that are going to be the first to leave are probably the best employees, because they can get hired most easily. You can't have a successful company in a competitive economy if you lose your best talent. Short term decision making often sacrifices higher value in the long term for lower but more immediate gratification. When we begin to use long term thinking in our decision making we almost always find that being nice is the best policy. You probably learned this in Kindergarten and it still holds true. If we treat all of our stakeholders, suppliers, customers, employees fairly, then, in the future we will attract and retain the most talented employees. Have suppliers that will help us when we need special service. We're going to live in healthy communities and have a thriving environment. But how does this helps shareholders and publicly treated companies? Managers are supposed to work on behalf of shareholders. How does shareholder benefit if the company is nice to all the other stakeholders? Well, we'll do a little thought experiment. If you don't know exactly when you're going to sell the shares that you own in a company, how do you want managers to make decisions? It should be pretty apparent that you want managers to try to increase the long term value of the company. So that at any point and time if you sell your shares, there value will be relatively high. On average long term value creation based on fair dealings with stakeholders will produce a higher value than cycles of short term manipulation. This is because a short term approach can harm some relationships with key stakeholders that'll eventually result in value losses. So long term thinking, which means establishing and nurturing good relationships with stakeholders almost always creates more value for everyone including shareholders. This doesn't mean that we go overboard and pay suppliers more than the price they're asking or give huge amounts of money to community charities or ask employees to only work a few more hours a day. It means we treat people fairly and honestly. So they're happy to have continue transactions with our company. Repeated transactions, knowing you'll see a person or do business with somebody many times in the future leads to a much different behavior and much better behavior than one time or one-off exchanges. In small towns, you always see people over and over. So you make decisions as if you're in a small town. Let's move to the next topic, intergenerational equity or fairness to the future. Intergenerational equity asks the question what sort of an obligation do we have to future generations and what does that imply about how we live today? These questions are very important when thinking about sustainability, the whole notion of sustainability, is that maintaining or sustaining some level of activity or quality of life for an extended period, like centuries. If we don't concern ourselves about future generations, I guess we can consume and pollute as much as we want now because we don't care about what we leave for our children and our grandchildren. And this is certainly one possible opinion, but it's not one that most people would agree with. Most people are concerned about the future and the quality of life that their children will have. What endowment should we leave for our children and all future generations? Think of an endowment as the resources, the technologies, the infrastructure, the institutions and the knowledge that give societies foundation as well as the health and wealth of individuals. We also pass on financial and environmental debts. Some argue that the entire package should be identical to the endowment to current generation inherited. This is called strong form sustainability. It implies no drilling for oil or mining for ore since those are non-renewable. It also ignores the constant innovation that goes on that enhances the future. A much more reasonable approach is called weak form sustainability. That says we should provide the capabilities to have a quality of life at least as good as the ones we have now. That means that in some areas technology and innovation can substitute for natural resources so we need to use resources carefully. We need to continue to invest and maintain infrastructure. And we need to create new technologies that will help fill in for the resources we consume. We want our kids to look forward to a wonderful future. All of this means that when companies make decisions, they need to look into the future and make sure their decisions don't create impact for future generations. We have to be nice to the future as well as the people we deal with today. Maybe the best summation of this whole notion of fairness to the future is this wonderful Native American statement. Make your decisions on behalf of the seven generations coming, so that they may enjoy what we have today. What about the seventh generation? Where are you taking them? What will they have? That's from Oren Lyons. So we've talked about the problems with short term thinking, the value of long term thinking and being nice and fair, and the importance of intergenerational equity. Next we're going to talk about resilience thinking. Thanks.
