15 May 2007 
 
Many Australian business leaders are risking long-term wealth creation in favour of short-term earnings and incentives, an industry expert warned today.  
 
Speaking at the Institute of Chartered Accountants in Australia’s Business Forum in Sydney, David Deverall, Managing Director and CEO of Perpetual Limited, said short-termism was on the rise in corporate Australia.  
 
A Perpetual survey of Australian business leaders this year found some alarming trends. While business leaders believe investors and shareholders are more interested in long-term performance and strategy, nearly one in four believed their current financial reporting was too focused on the short-term.  
 
According to Deverall, this short-termism can destroy long-term value, decrease market efficiency, reduce investment returns and impede efforts to strengthen corporate governance.  
 
Deverall believes that the solution lies in strong, disciplined leadership that strikes a balance between short-term attributes (such as being strong on costs and strong on execution) without losing sight of the need to build longer-term shareholder value. This requires high quality communication of financials that resists traps like reporting revenue too prematurely or shifting period expenses to other periods. Accordingly, remuneration incentives must be aligned to long-term strategic goals. 
 
“This growing imbalance toward short-term issues is posing a real threat to wealth creation over the longer term, particularly in superannuation,” Deverall explained, “Business leaders need to invest in growth strategies which will deliver long-term value for shareholders. Communicating to the market needs to provide a balance between ticking off on the short-term targets and providing information about how the strategic initiatives will deliver long-term growth.”