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Dangers of Short Term Business Thinking

Is a short term mindset damaging economic growth? According to some, this sense of short termism is an entrenched feature of the UK business mindset and could be damaging growth prospects. Sir George Cox, the former General of the Institute of Directors, has written a report commissioned by the Labour Party, where he stresses that overcoming this way of thinking is one of the only ways to set the UK economy on the way to growth.

Overcoming the tendency to focus on short-term gains is the only way to ensure the UK economy grows, according to Cox. He has recommended changes that would mean many executives’ rewards were based upon longer term results.

He commented: “Short-termism curtails ambition, inhibits long-term thinking and provides a disincentive to invest in research, new capabilities, products, training, recruitment and skills. Economic growth needs to become an objective, with strategies to achieve it, not a forecast on which all other decisions are dependent.”

Shadow chancellor Ed Balls also commented; “Sir George’s report sets out a clear plan for creating that more long-termist economy including radical reforms to executive pay, tougher rules on takeovers and encouraging longer-term shareholding and we will now study his detailed proposals as part of our policy review.

“It’s vital that we take action to kick-start our flatlining economy, but now is also exactly the right time to make the long-term changes we need to make our economy stronger, more balanced and better able to attract new investment and create skilled jobs for the future.”

While all this might impact mostly on larger businesses, it’s still something smaller businesses need to bear in mind. Forward planning, cash flow projections and long term goals all have their place in ensuring small business growth.

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