Have you ever waited until the very last minute to work on an assignment? Let's be honest, you've probably done it a million times. You may even be procrastinating just reading this article!
Now, replace the words "an assignment" in the previous paragraph with "climate change" and read in the voice of a major oil corporation. Climate change is likely not at the top of that company's priority list. There are lots of factors that fuel the decision- making processes that lead to the neglect of such important social and environmental concerns, including the way our system is structured.
"We're in a financial system that makes it tempting to only think short-term," said Dr. Sandra Rothenberg, RIT professor and director of Saunders College Institute for Business Ethics.
The Future is a Treat
Like the children in the Stanford marshmallow experiment, organizations are making decisions every day — with or without the societal implications in mind.
In the study, children were seated before a treat, in the form of a marshmallow or toy. They were then presented with a choice — to either consume the one marshmallow immediately or wait several minutes and be able to have two of the treat. The findings concluded that only a marginal amount of children were able to hold out long enough to earn the second marshmallow.
The experiment was later used to expose some interesting findings with regards to the life-long implications that patience and self-control can have on an individual's livelihood and success. A piece published in the New York Times went so far as to discuss the other characteristic traits that allowed some children to hold out for the delayed gratification of two marshmallows.
Now take that scenario and apply it to the business world. For many major corporations, the first marshmallow could be equated with money while the second — and often disregarded — treat is something like environmental conservation efforts or human rights advocation. Only now, the external motivating factors are associated with higher stakes.
"Companies have a set of external demands that push them toward prioritizing short-term benefits over long-term ones," Rothenberg said. "So, the financial markets in particular encourage companies to think about short-term returns." A Harvard Business School study affirmed that not all companies suffer from this "short-termism," but those that do tend to exhibit other unique characteristics, like riskier performance.
Dr. Eric Hittinger, assistant professor of public policy at RIT, attributed the time value of money to the neglect of important social and environmental factors. "The idea is that everybody, corporations included, value things now more than we value them in the future," he said. If somebody were to offer you the choice between $10,000 today or a slightly larger sum in a decade, the rational response would be to take the money now since you would get more out of the exchange, mathematically speaking. This inclination for immediate monetary gratification can also be referred to as financial impatience.
"There are plenty of examples where organizations routinely struggle with short-term, long-term goals," said Dr. Shalini Khazanchi, department chair and associate professor of management, international business and entrepreneurship. She added that losing sight of long-term goals was a contributing factor to the downfall of Kodak, a devastating demise which Rochester witnessed first hand.
Every decision an organization makes correlates with the overall goals and priorities of the collective. "Companies, because of an obligation to stockholders, only really care about what happens in the next 10 to 15 years," Hittinger said.
On the corporate level, a Harvard Business Review piece suggested that "we need to broaden our definition of success so that long-term corporate sustainability and long-term global sustainability get the attention they deserve." By adding incentives to long-term initiatives, issues like climate change can more easily make their way into the foreground of short-term goal setting.
A Harvard Business Review piece suggested "we need to broaden our definition of success so that long-term corporate sustainability and long-term global sustainability get the attention they deserve."
Unlike corporations, federal organizations have different responsibilities to their stakeholders: citizens. "Ignoring the politics, governments tend to have really low discount rates," Hittinger noted. "Governments tend to invest for the future."
"When you look at government decision-making, governments will invest in projects that pay off a 2 percent return, a 3 percent return and sometimes even a 0 percent return," said Hittinger. "The reason for this is that governments tend to have the ability to borrow money cheaply." Unlike the short-term oriented corporations in question, the government is able to wait for the second marshmallow. They are not starved for sweets. Why is it, then, that so many governments struggle with many of the aforementioned crucial long-term goals?
Take the Cake, Already!
The lines blur as corporations lobby and special interests contaminate governmental decision-making processes. "Corporations are always going to push for shorter-term thinking than government should be obliged to do," Hittinger said. "That's going to become manifest through their lobbying efforts."
"Corporations are always going to push for shorter term thinking than government should be obliged to do," Dr. Hittinger said. "That's going to become manifest through their lobbying efforts."
"It's the government's job to think long-term, to think over the next 50 or 100 years and, in my opinion, that puts something like climate change right in the center of this debate," Hittinger said. "If you think 50 or 100 years out, then you ought to be doing an awful lot about climate change. If you're thinking 5 or 10 years out, you should be doing absolutely nothing about climate change." Governments should be waiting for the second marshmallow, in this case protecting the environment, but often end up being swayed by the promise of cake.
"For a corporation, the best legacy has been to build great products, build wealth and the legacy is that they are building industrialization, improving quality of life, providing jobs for people," Hittinger said. "Those have always been and continue to be good things, and we've almost never had anything that's challenged that point of view that 'growth is good' fundamentally like climate change has."
"If they knew the damage was going to happen tomorrow, I think you'd see a different decision-making process," Rothenberg noted. "But, they're taking the short-term gains and they're weighing them against long-term damage."
"If they knew the damage was going to happen tomorrow, I think you'd see a different decision making process," Rothenberg noted. "But, they're taking the short term gains and they're weighing them against long term damage."
Money is a tantalizing marshmallow, sitting across the table. Salivating at the thought of an even bigger payoff, the nearsighted corporate mouth whispers into government's ear, convincing it to stall critical reforms and, instead, focus on a more immediate, gluttonous, greed-propelling procrastination. A corporation with long-term horizons, on the other hand, would whistle hearty melodies about positively impacting society and the environment now, with the future in mind.