We are frequently asked: what does “long term” mean? Our response is often met with: “but I don’t have long term”. We focus on the longer term because it is more predictable. In the short term, anything can happen, things are more speculative and driven by unpredictable events. This is the realm of gamblers.
Simon Sinek’s latest book The Infinite Game distinguishes between finite and infinite games. Many of the thoughts here are drawn from his book. Finite games are those where the goal is to win, the players are known, the rules are fixed and the end point is clear. We experience the thrill of competition, then it is over. The focus is on the score. Sporting competitions are typical of this type of game. When this approach is applied in the business world, the culture of the organisation inevitably suffers. Jack Welch of GE fame said “long term is just a series of short terms”. The goal was simply to perform and then perform again. This mindset ended in GE requiring a government bailout to avoid bankruptcy after the global financial crisis.
In infinite games like politics, business or life, players come and go, rules change, there is no end point, there are no winners or losers. The goal is to keep playing. Consistency is more important than intensity. Leaders need to resist short-term temptations, act ethically to survive and thrive for a long time. They need a cause to inspire loyal teams to keep playing. They recognise that being best is temporary and instead strive constantly to be better. The focus is on people rather than profit, trust rather than performance, process rather than outcome, improvement rather than winning. Constant or high-speed growth is not necessarily a great strategy in building a company to last. For an infinite minded leader, growth is an adjustable variable.
Company life spans are reducing (from an average 60 years in the US in the 1950’s to 20 years today). Sinek attributes this to short-sightedness of leaders unable to envision the future of their business as the world changes around them. This short-sightedness is inherent in leaders who play with a finite mindset. This short-term focus in business can be traced to the philosophies of Nobel Prize winning economist Milton Friedman and his watershed 1970’s article, in which he said: “there is one and only one social responsibility of business …to increase its profits so long as it stays within the rules of the game.” His guidance for responsible companies was to act within the law and “ethical custom”. Why not just “ethics”. If something becomes the norm, is it no longer unethical? Ethical fading is not an event that suddenly happens, it occurs as a result of a culture that demands short term performance.
Adam Smith’s philosophy from The Wealth of Nations published in 1776 was that the company’s interests should always be secondary to the interests of the consumer. He accepted that our innate propensity for self-interest would encourage us to build strong companies, but the consumer was the focus and at the core. Smith did not envisage a group of self-interested outsiders that would exert massive pressure on costs and profits to maximise investor gains.
Shareholder supremacy has taken over. Incentive structures have focused on shorter term gains that benefit fewer people. Mass layoffs and share buy backs have become the norm to satisfy short term performance requirements. Prior to the 1980s this practice did not exist; it was common for people to work for one employer for a lifetime. Trust, pride and loyalty flowed in both directions. Capitalism is broken and is organised to advance the interests of a few people who abuse the system for personal gain. In 1978 the average CEO in the US earned 30 times more than the average worker. Today they earn 271 times more! The CEO has seen a 950% increase while workers have had an 11% increase.
Dr Stout points out in her book The Shareholder Value Myth, “If 80% of the CEOs pay is based on what the share price is going to do next year, he or she is going to do their best to make sure the share price goes up, even if the consequences might be harmful to employees, to customers, to society, to the environment or even to the corporation itself in the long term”. Laws and governance develop in response to abuses, not in anticipation. It has almost become a requirement for companies to exploit gaps to maximise profits until future laws prevent them from doing so. Many business and political leaders have decided the best way to get the most cherries is to chop down the tree. For many, modern capitalism doesn’t align with our values. The stock market is used as a tool in a finite game and the middle class is reacting to the imbalance and lack of trust in the system by reducing their exposure to the stock market to the lowest level in decades.
Most of our clients have one common question: “Am I going to be OK?” Securing financial independence for our clients is an infinite game. Most of what we do is not measurable (like trust and risk). We are not waiting for our ship to come in – we have ships coming and going all the time. Financial independence needs to be maintained for years or decades, through cycles, despite political turmoil, regardless of business disruption and allowing for unplanned eventualities in personal lives. This requires an awareness of trends, ability to manage risk, hope and faith in the good of mankind, while remaining adequately sceptical and cautious, acceptance that the future is uncertain. These things cannot be won, lost or even measured in any way.
We measure what is measurable and useful to measure, compare, evaluate and hold ourselves to high performance standards. However, we must not allow ourselves to be too distracted by short- term, finite considerations. While we enjoy the thrill of competing and do not shy away from the occasional finite game, we need to keep the outcome in perspective. It is the infinite game that is more important – ensuring our clients remain financially independent, regardless of what life may throw at us.