Is long-term sustainable value a reality or myth?

Shareholders are meant to focus on creating long-term value but is this possible in an environment which measures returns daily and where analyst reports focus on this and next year’s outcomes?  Similarly, public companies aim to deliver superior medium-term results but are measured quarterly. 

The art of creating long-term returns is investing for the future by sacrificing returns today.  However, is it realistic for a CEO to take the personal risk of sacrificing returns today for greater returns tomorrow?  Given the short survival rates of CEOs this is questionable.  Yet for medium-term value creation it is imperative they do.

" Over time, excess returns fade to the norm."
John McFarlane, Chairman Barclays Bank, TheCityUk

The reality is our public companies are generally unsustainable. Only a few survive as thriving entities over the medium-term.  In the UK the FTSE 100 index started in 1984. When the index celebrated its 20th anniversary only 23 of the original 100 remained.

The reason is industries have lifecycles - they grow and fade.  Successful companies buy up unsuccessful ones. Companies make mistakes and fall behind relatively as they recover. 

Focus is placed on short-term performance, which leads to under-investment for the future and the ultimate decline of the corporation.

A new philosophy is therefore required. 

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At the heart of this philosophy is a genuine focus on long-term returns and the creation of sustainable corporations.  A number of themes emerge.

• The purpose of a company should be to produce acceptable returns for shareholders over the long term while delivering acceptable short-term outcomes. 

• Those companies which find their unique place in the world win over others who are not unique. Those with a sustainable reason for existing systematically win over those who do not.

• Winning companies focus not only on what they can gain financially from success, but on how they can make a lasting contribution to society.

• Leadership of sustainable companies is based on principles.

Successful companies make it their mission to make a long and lasting contribution to all stakeholders, as well as producing superior financial outcomes.

They are very clear why a customer should deal with them and not with another, why suppliers give them priority, why their people should invest their working lives in their adventure, why the community should trust them, and why shareholders should invest in them. 

There is a difference between a system governed by principles and one controlled by rules.  Principles define the centre of gravity, or the ideal state, or what is desired.  Rules define the boundary of what is acceptable.  If the speed limit is 70 miles per hour on a motorway, that tends to become the minimum.

Running an organisation by rules generally leads to a company operating at the boundary of what is tolerable. Embracing principles requires a strong ethical and moral foundation, as well as a long-term focus at the heart of what a business is trying to create and an environment where people are inspired to do the right thing. 


In making the shift towards sustainability we need to recognise it is no longer sufficient to have an agenda purely around shareholder value.

We only need to look at the recent corporate underperformance based on short-termism and greed to realise the limitations of wealth creation as the sole purpose of companies.  Such a focus can lead to the wrong behaviour and decisions.

A sustainable corporation requires a more balanced agenda around all stakeholders – customers, suppliers, partners, community and people - as well as shareholders. 

We are in business to produce excess returns over the cost of capital. Over time, excess returns fade to the norm. Capability needs to be invested in and constantly renewed.

Of course it is necessary to survive if companies are to succeed long term.  However, the harsh reality of today is the short-termism of markets means survival and success today matters more than success tomorrow.

Staying alive and living for today in business has come to dominate preparing ourselves for a longer journey.  Making money matters more than making contributions.

Such an approach cannot be justified. The bias of our focus cannot be just on today, but instead it must be on longer-term success.


Any discussion on corporate sustainability begins with the premise we are in business to serve customers and we do so with people, partners and suppliers in order to produce returns for shareholders.

The only long-term source of value is revenue. While cost and capital are important, these are inputs to generating a future revenue stream.  It is customers that produce revenues.

While it is often claimed ‘customers come first’ sadly this is rarely close to being the case.  The key is to offer customers something important to them that they cannot get from someone else.

There needs to be a tangible and sustainable reason why customers should deal with us unique to us. We should position ourselves to then own this space and ensure we execute this effectively.

At the same time it is important to consider our suppliers as long-term partners and to be relationship based in the way we deal with them in recognition we could not succeed without them.  They are an essential part of our enterprise.

We often forget it is our people and how they work together which makes a company great.  It is our people who serve customers and create new ideas.

Our responsibility as leaders is to create an exciting but safe adventure for our people, that is worthy of them devoting their lives to it. How people feel about working in the organisation and how passionate and engaged they are in its agenda is what makes the difference between good and great companies.

Our people innovate and produce results, and we in turn provide them with opportunity and development.

The responsibility of a company to a community appears obvious on the surface, but for public companies it is more complex, as we need to justify our actions to our rightful owners, our shareholders.

As a banker, today I am ashamed of the reputation of our banks. I joined the industry over forty years ago where the bank manager was the doyen of the community. Not so today.

We must return to the philosophy that banking is a profession as well as a business, and that contribution rather than reward is its centre of gravity.

Now what about shareholders?  What are our responsibilities to them?  This raises a number of questions.

Which shareholders – the ones who are shareholders today, or potentially tomorrow?  Since institutions tend to be measured on annual relative returns, rather than absolute, they tend to switch in and out of stocks – overweight or underweight.

This has caused the market to be shorter-term in its orientation, causing a management focus on annual out-performance to reward current shareholders.  This in turn, leads to under-investment in the future and damages shareholders who stay with us and don’t take their profit today.

For this reason, the focus of management should be on superior performance over the long-term, while producing acceptable rather than superior returns in the short run.


A company is not simply a financial construction; it is much more. A vibrant company is more than the sum of its pieces.  It is a synergistic space where one plus one equals much more than two.

We can generally sense when a company is working and when it isn’t when we interact with it. We can tell if it is interested and engaged with us or not. We can also sense when a company lacks the vital ingredients for success.

If we can sense these things, a company must be more than its property, its people, its products and its capital. What we sense is its true essence, and how alive, energetic and purposeful the company is.

A company needs to make a return but it must also stand for something beyond this.  It needs a higher purpose that is the centre of gravity that governs all decisions within the firm.

At the heart of this is a genuine focus on long-term value creation while finding a balance between all stakeholders.

We are each on this planet to make a contribution to the world in our lifetimes. People are searching for meaning and how they can make their own unique contribution. This is an age where humanity and community matter as well as financial returns.  Finding this foundation underpins a longer-term philosophy.

As leaders therefore, we need take the actions necessary to earn long-term trust and commitment as a foundation for long-term value creation. Our actions and decisions must therefore be socially beneficial, culturally desirable, ethically justifiable, economically feasible, ecologically responsible and above all, convincing and transparent.

The absence of such a balance perpetuates the myth, but its attainment brings alive the possibility of making long-term value creation a reality.

John McFarlane, Chairman Barclays Bank, TheCityUk and former CEO of ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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