Corporate stewardship: making the leap from theory to practice

THE chairman of a well-known property company was reminiscing, in private, on the boom years before 2008. He admitted that, to his great regret, he had failed to resist the pressure from institutional shareholders to increase the company's debt and pay out more to those shareholders. This decision left the company dangerously exposed when the cost of credit increased. He hadn't thought it was the right thing to do at the time. He just didn't know how to resist.

Short-termism is costly, to companies as well as economies. As Dominic Barton and Mark Wiseman pointed out recently in an April 1 article for the London Financial Times, the pressure to meet quarterly earnings targets has been estimated to have reduced research and development spending and cut US growth by 0.1 percentage point a year. In contrast, stewardship is about building enduring companies which are the cornerstone of a…