The Cancer of Short-term Thinking

Western capitalism is fighting a form of business cancer. And the most virulent form of it is short-termism.

In physical cancer, some cells go haywire and turn viciously against the body. This is also what happens when certain core beliefs are perverted or taken to extremes. Some examples—the beliefs that:

• greed is good (Hollywood simplification)
• individual pursuit of selfish aims yields public good (mis-translated Adam Smith)
• pursuit of short-term corporate goals ends in long-term social success (what’s good for General Motors hasn’t been good for America for some time now).

Those and other beliefs have resulted in rampant short-termism. A few examples, “ripped from the headlines:”

1. The trend in private equity toward front-end deal fees. Gretchen Morgensen’s NYTimes article quotes Michael Jensen, emeritus of Harvard Business School and the “father of private equity:”
“…these fees are going to end up reducing the productivity of the model… People are doing this out of some short-run focus on increasing revenues."
In other words, private equity is good when it subjects bureaucratic managers to the pressure of markets, with say a 3-5 year timeframe. But when the privateers themselves succumb to the lure of instant front-end fees, the greed snake is eating its own tail.

2. The trend in the mortgage industry to convert relationships to transactions—from integrated loan-making and loan-holding, to separating the entire process into various stakeholders—most of whom get their money up front, now. Short term.

3. The IBGYBG mentality in investment banking during several market crashes detailed by Richard Bookstaber in his book A Demon of Our Own Design, that resulted in people making fast deals that would explode on investors down the road, but that paid off nicely up front for the dealmakers, who said not to worry, because—"I’ll be gone, you’ll be gone," it’ll be someone else’s problem then.

4. Young financiers opting out of an MBA because the opportunity exists to make so much more money in the short term:
“With the growth of hedge funds, you’re getting a lot of really smart people who are getting paid a lot very young,” says Arjuna Rajasingham, 29, an analyst and a trader at a hedge fund in London. “I know it’s a bit of a short-term view, but it’s hard to walk away from something that’s going really well.” Yup on both counts.

5. The current residential real estate recession, driven heavily by speculative buyers betting well beyond their means on continued high prices—“I’ll pay off the loan when I flip it.”

6. The longer term trend in business toward “alignment” of processes—which often assumes the only way to long-term profit is to ensure that every short-term measure is itself profitable.

7. Quarterly earnings pressure, which was one of the original drivers of private equity, back when PE was doing some good.

8. Private equity firms selling equity to the public: “a non sequitur in both language and economics,” according to Gretchen Morgensen’s paraphrase of Michael Jensen .
The private equity movement initially shook up stodgy companies that were permanently-funded by stock, where inefficient managers could hang out draining away value for decades. Private equity would buy them and insist on returns in 3-5 years; it left managers no place to hide, and produced real value returns. But when the 3-5 year people themselves start selling permanent stock to investors, they have become what they started out to fight. Which means they’re either stupid or venal. And while I usually opt for stupidity in explaining conspiracy cases, in this one I’d put money on venal.

Is there any relief? Or is this just another case of cheap hustlers exploiting weak human nature that goes with every business cycle?

Three antidotes can work against short-termism. One is pain. Suffering may not be a sufficient condition for social change, but it’s usually a necessary one.

Second is education. Awareness creation can help.

The third is leading thinkers, and there are some hopeful signs. Martha Rogers has begun talking about a lifetime financial perspective on customers:

"Creating maximum value from your customers involves optimization — balancing current-period profits against decreases or increases in customer lifetime values, to maximize your “Return on Customer.”

This isn’t new in finance, accustomed to present-value thinking in pricing financial assets. But it’s new to management thinking, accustomed to quarterly EPS. Robbing future customers robs enterprise value, says Martha. And she’s right.

The aforementioned Michael Jensen announced last month a paper he wrote with Werner Erhard (the controversial founding father of EST training, and more recently of Landmark Forum) on the subject of—get this—integrity.

Here’s a tasty quote from the abstract:

We demonstrate that the application of cost-benefit analysis to one’s integrity guarantees you will not be a trustworthy person (thereby reducing the workability of relationships), and with the exception of some minor qualifications ensures also that you will not be a person of integrity (thereby reducing the workability of your life). Therefore your performance will suffer. The virtually automatic application of cost-benefit analysis to honoring one’s word (an inherent tendency in most of us) lies at the heart of much out-of-integrity and untrustworthy behavior in modern life.

They are right too. You can’t fake trust; trust is a paradox; motives matter. The act of justifying trust by its economic value destroys not only trust, but its economic value. The best economic results come as byproducts, not goals.

Can clearer business thinking beat short-termism? It can’t hurt.

22 replies
  1. lgattruth
    lgattruth says:

    It is surprising that this Michael Jensen person would agree to co-author an article in an academic setting with an individual as controversial as Werner Erhard.  I did not know that academic articles could be co-authored with someone that has nothing higher than a high-school degree and no higher education.

    I had previously thought that academic articles are usually only co-authored by other Ph.D.s (and maybe also by someone with a Master’s Degree who is a Ph.D. candidate.)

    I guess Werner Erhard has the time to contribute to articles, now that he is living in the Cayman Islands with longtime associate Gonneke Spits –


  2. Charlie (Green)
    Charlie (Green) says:

    "lgatruth," it would serve your case better if you commented–and blogged–under a name, rather than an acronym for your special interest blog. It would also help if you addressed the issue at hand, rather than solely resorting to ad hominem attacks.

    Werner Erhard is indeed a controversial character, and I’m glad you at least included some links–the New York Magazine article in particular is a good mix of information and scepticism about his current incarnation in Landmark Forum.  But that doesn’t for a moment invalidate the truth or falsity of what he wrote with Jensen.  Do you have anything to contribute on that subject?  Or not?

    The truth is independent of who speaks it.

    And, if you are indeed "surprised that ‘this Michael Jensen person’ " as you put it would co-author an article, then–here’s a wild thought–why don’t you go look up Michael Jensen and see what he has to say about it?

    I am sceptical of Erhard too. But I also respect Jensen–and it’s not inconceivable that someone else might know more than me on any given subject, so it bears looking into, in my book. I looked into the piece they wrote–and it looks pretty good to me.

    How about you? Do you have a substantive opinion on what they wrote? Or are you just bot-scanning the web for more places to leave hate-droppings?

  3. lgattruth
    lgattruth says:

    If you would take the time to read the excellent article "Introduction to the Landmark Education litigation archive ", by adept attorneys Skolnik and Norwick, you would respect the reasoning behind why I post with an acronym, and do not open myself up to frivolous litigation from what some have referred to as a litigious organization.

    I am glad that you acknowledge me for backing up my writing with links and sources, but also offended that you consider it to be "hate droppigns."  I had wanted to have a rational inquiry with you, but by calling my thought-out comments "hate droppings" and  "ad hominem attacks", which they were most certainly not intended to be, I am offended.

    Good day to you, I highly encourage you to read through some of the primarly source documents, court cases, as well as investigations by the United States Federal Department of Labor, at the Landmark Education Litigation Archive.  And no, this is not meant as a "hate dropping", but as a encouragement for individuals to do more research on their own – if not from secondary source documents, than primary source documents.

    Enjoy the blog posting.

  4. Charlie (Green)
    Charlie (Green) says:

    lgatruth, if you want to remain anonymous, I guess that’s your business.  If you want to be offended, ditto.

    But if you want to hijack my blog post with ad hominem arguments, that’s mine.

    Now–what part of "ad hominem" do you not understand? 

    Here’s the definition from Webster’s online dictionary:

    Main Entry: 1ad ho·mi·nem
    Pronunciation: (')ad-'hä-m&-"nem, -n&m
    Function: adjective
    Etymology: New Latin, literally, to the person
    1 : appealing to feelings or prejudices rather than intellect
    2 : marked by or being an attack on an opponent’s character rather than by an answer to the contentions made

    Let’s review the bidding.  I read, quoted from, and commented on an article by Michael Jensen and Werner Erhard on integrity.

    Your original comment did not mention the article, did not suggest that you had read it, and did not make any contribution to its analysis.  Instead, you commented on Erhard’s lack of educational credentials, and attached articles critical of him and his institutional heir, the Landmark Forum. 

    I called that ad hominem argumentati0n, and still do.

    Now, you are "offended."  And yet you atttach still more critical documents about Erhard, est, Landmark et al.  More ad hominem arguments, in other words.

    I repeat, what part don’t you get?

    Here’s why I’m being a stinker about this.

    Whether it’s Rush Limbaugh, or you, or anyone else, when someone moves a discussion away from content to an attack on the author, rational discourse is dead.  And I sincerely believe in rational discourse; something I suggest you are being hypocritical about.

    This is precisely why so many blogs devolve into flamethrowing and blamefests.  I have made it a practice not to censor this blog, except for obvious spam advertising for things like viagra and interest rates–because they have nothing to do with the content of the argument.  Kind of like what you wrote.

    But I will sure point it out when someone pulls a cheap rhetorical trick like that.  And frankly, for you to pretend this is rational discourse suggests there’s another concept you need to look up.

    If you were serious about "getting a rational inquiry" going here–which I seriously doubt–then you would simply have something to say about the material being posted

    If you want to flame on about why you love Landmark, or why you hate Landmark, go found your own website.  (Oh wait, you did, that’s your acronym).

    In the meantime, do others the courtesy of at least pretending to stay on point.  All you have to do is  point out something in the article by Jensen and Erhard that you disagree with.  

    (And by the way, if you’re going to disparage others’ education, you might do well to check your own spelling and grammar.  That’s not an ad hominem argument–that’s a critique of your communication skills).   

  5. lgattruth
    lgattruth says:

    I had not realized it before, but it looks like you have previously cited Landmark Forum, in your post "Privates, Publics and Politics", from August 27, 2007 –

    I am curious, are you a "graduate" of one of the Werner Erhard deriviative trainings?  Either Erhard Seminars Training / EST, Werner Erhard and Associates / The Forum, or Landmark Forum / Landmark Education?  Or perhaps a different form of Large Group Awareness Training?

    If you are a "graduate" of one of these "courses", perhaps it might be interesting for your readers if you were to delve into your personal experiences in these "trainings" in greater depth in a future blog post?

  6. Charlie (Green)
    Charlie (Green) says:

    (head in hands, groan)

    To other Trustmatters readers, I apologize for this continued attempt by one reader to attack personalities rather than message.  Now he’s trying  the same technique on me.

    For the record:

    –I have never attended any of the above programs:

    –If you want to join his all-cults-all-the-time monologue, see lgatruth on his own website–; until he has something to say that’s on topic, I’m kicking his future comments off of here.


  7. lgattruth
    lgattruth says:

    I have something to say that is on topic.

    From the abstract that you quoted, Michael Jensen and Werner Erhard use some strange forms of the English language throughout the paper.  Phrases such as "honoring one’s word", and "out-of-integrity" are verbatim phrases used from Landmark Education.  This paper is nothing more than an attempt to push out Landmark Education jargon into a more respected setting than self-improvement seminars.

    Here is a section of Dr. Robert Jay Lifton’s book Thought Reform and the Psychology of Totalism – where he discusses "Loading the Language" – the Language

    This is exactly the type of twisting of meaning of the English language that Michael Jensen and Werner Erhard are doing here.

    Dr. Paul Martin, psychologist, has analyzed this usage of jargon in controversial groups and movements, in a case study of "Loaded Language" usage in a different controversial group, NXIVM / Executive Success Programs.  The article is titled "Robert Jay Lifton’s eight criteria of thought reform as applied to the Executive Success Programs " – the Language

    I hope that is on topic enough for you.

  8. Charlie (Green)
    Charlie (Green) says:

    Since you read and referenced the article, it’s on-topic enough to get you back in.

    That said–do you have something to say about it?

    I don’t really find it surprising that a paper by two people might cite a phrase used previously by one of them.

    More importantly: the idea that "honoring one’s word" might be a basis for a definition of "integrity" is precisely the kind of idea I find fascinating. I have no idea what you think about it because you will only talk about trashing Landmark.

    Max Kirsch, in a 1998 book on Multinational restructuring in New England communities, cites earlier research about mores in small town Wisconsin, saying, "crucial to this concept of trust is the related concept of honoring one’s word, of meeting one’s obligations and responsibilities…"  I doubt the small-townies in Wisconsin in the 50s had yet been brainwashed by Erhard.

    The phrase "honoring one’s word" also pops up in court cases–google it.  I doubt the lawyers who use the phrase are undercover Landmark-ites. 

    I have said, in my own seminars, the following: "A good definition of integrity is to say the same thing to all people at all times in all situations."

    I and my co-authors, in our book The Trusted Advisor, include reliability as one of the four components of trust; we say, "reliability links words and deeds, intention and action…it is the repeated experience of links between promises and action."

    Those ideas are in the same topical area as Jensen and Erhard’s idea of integrity, I think.  Does that mean we’ve been programmed into a cult–without our knowledge?  I don’t think so.  None of the three of us have been to a Forum session–unless we were abducted in our sleep and programmed to forget it.

    But that’s not even the point. The fact that a phrase like "honoring one’s word" is a key focus of an organization doesn’t detract one iota from the validity of the idea. Again, read my diatribes above on the vicious nature of ad hominem argumentation.

    Like lgatruth-anonymous, I am very suspicious of Landmark and its predecessor organizations as organizations. But I also happen to believe that their core ideas, as I understand them, are spot-on, powerful, meaningful, and not unique.

    For anyone who might actually still be interested in an intelligent discussion of whether "honoring one’s word" can form a valid basis for a view of integrity, I commend to you a most excellent posting on the Legal Profession Blog, titled Integrity is a Strange Loop. It is everything this thread of discussion should have been, but wasn’t.

    The author, Jeff Lipshaw of Suffolk Law School, review the Jensen/Erhard abstract and concludes that, while it over-reaches on a metaphysical claim, in the practical world of business it’s a damn good piece of work. He says it much better that that, of course.

    You might also enjoy visiting Johnson Farm Enterprises, a horse farm, where George and Pamela Johnson "have learned that the time-proven values of honoring one’s word, working consistently smart and hard, devising a plan and then seeing it through to completion are some of those building blocks that support one’s goals and dreams in life."

    As far as I know, they’re not hypnotized cultists. But then, lgatruth might want to disparage their farm because they used the same language that Werner Erhard does.

  9. lgattruth
    lgattruth says:

    And yet, there is also the combination of the use of this phrase, with the other phrase "out-of-integrity"  —  a virtual catchphrase of Landmark Education and prececessor organizations’ "coursework."

  10. Dawn
    Dawn says:

    And yet, there is also the combination of the use of this phrase, with the other phrase "out-of-integrity" — a virtual catchphrase of Landmark Education and prececessor organizations’ "coursework."

    Oh, for pity’s sake, who cares? I’ll make you a gift of a pithy saying I used to hear from my mother, lgatruth: People make you more important than you are.

    Are you really sure that you want to do Landmark the favor of all this free publicity? I wouldn’t have thought so but I’ve been known to be wrong.

    But that’s not what I stopped in here to talk about.

    Charlie, I’m curious about something. You say that you are fascinated by the idea that "honoring one’s word" could be a basis for a definition of "integrity." What, precisely is fascinating about that to you?

    Maybe I’m a bit of a simplistic thinker but it would seem to me that the concept of "honoring one’s word" as an element of integrity would be a bit of a no-brainer.

    If you look up the word integrity at a resource like (which uses more than one source for its definitions), you find that it is defined by pretty much all sources as a combination of consistency and honesty.

    Most people use the phrase ‘honor my word’ interchangably with ‘honest’ but, if we take the phrase a bit more literally, it become the choice to view what you tell people with respect and distinction.

    In other words, when I say that I honor my word, what I am actually saying is that what I tell you is important to me and is something that I treat with respect. The logical progression would seem to me to be that, if I am going to treat my own language with respect, then I am not going to say things I don’t mean, make promises I don’t intend to deliver, or otherwise give either you or I cause to view my language as anything other than real, transparent and trustworthy.

    Which, it seems to me, is a long-winded way of saying, "I speak with integrity."

    Your thoughts?

  11. Charlie (Green)
    Charlie (Green) says:

    Thank you, Dawn, for bringing back some good dialogue!

    I think your comment is a good one; on some level, "honoring one’s word" and "integrity" go hand in hand. That is indeed a no-brainer.

    I think my fascination with it stems from two sources. First, the word "integrity," like the word "trust," has many shadings. In addition to "honoring one’s word," I think you could make almost as good a case for "no brainer" status for other words–like credibility, or honesty, or transparency, or completeness.

    (In fact, the root of "integrity"–I think–probably has more to do with the idea of "wholeness" than anything else: think "integral," or "integrate," or "integer." )

    But the bigger reason I found it of interest is that here’s a guy–Michael Jensen–who’s among the luminaries in modern financial theory, who is associated in many ways with things like options pricing for managerial incentives, and with the beginnings of private equity, and who–to my surprise–is now writing about a theory of the firm, and of business, and of people–based on integrity. Not your average economist-slash-finance theoretician.

    To be honest I’m reflecting a bit in the rear-view mirror here, but in that mirror those are the two parts that caught my attention.

    But I also think you are dead right: if "honoring one’s word" isn’t connected in some no-brainer way with integrity, then there’s a problem. And business is not long, right now, on people who honor their word; hence, business is not long on integrity.

    (I know, I know; another no-brainer. But perhaps it can add a little bit to light the path for those who would see a bit more integrity in business).

  12. Dawn
    Dawn says:

    Well, if we want to get into real literalism here (which I’m perfectly willing to do), then judging from the root it shares with the words like integrate and integer and integral, the word integrity really reduces to being true to itself — complete unto itself, whole and unassailable. 

    Of course, in those circumstances, it is probable that even the Snidely Whiplashes of the world have a certain kind of integrity in their evil ways. All this has to do with the wonderful nuances of language and the different ways we can use words to mean different things, depending on context. (I suspect that may be a topic for a different post.)

    Certainly, there are a lot of words that you can group together and slap under the label of integrity. I find your list to be a good one – although I would argue that credibility is a perception of you based on your behavior, and can but doesn’t necessarily have anything to do with honesty.  Credible (able to be believed) can just as easily have to do with the accuracy of your information as it can have to do with the honesty with which you impart that information.

    Semantics are fun, aren’t they?

    But let me set aside all this blathering in order to make my point.

    In some ways, integrity is incompatible with
    business, as Jensen points out … that is, if one’s purpose in business is simply and solely to make as much money as possible by any means possible. If that is your goal, there will be times and places in which it is actually against your interests to behave with integrity.

    Of course, that is a rather simplistic way of looking at things. There are rewards attached to running a business with integrity, even if nobody has figured out how to measure that yet. When they do, it is possible that we will learn that the benefits of integrity extend beyond being able to look yourself in the eye while shaving. It may be that researchers will find (may have already found; I don’t claim to be familiar with all the economic research out there) that the marketplace responds to honesty in business, particularly for those of us who prefer to take the long view.

    Ultimately, the degree to which any individual business person believes it is important to behave with integrity will depend on the degree to which that individual decides to allow themselves to turn their backs on their own humanity in order to become a money-making machine.

    In think our human needs and values can save us from that kind of thing in many instances because humans are social animals. We humans need relationships and relationships are, to one degree or another, based on things like openness, transparency and trustworthiness (the healthy ones are, anyway).

    What makes maintaining humanity in business difficult, I think, is the fact that our culture seems to have come to worship money for its own sake. Certainly, those in power (both politically and economically) do, at any rate. In spite of the lip service (which only seems to happen around Labor Day anymore), we have  largely lost the sense that there is value in the work itself. Yet, we humans have a need to perceive the value of our labor, not in terms of how much we are paid necessarily but in terms of what we make and how well we make it.

    To tell you the truth, in that sense, there is very little integrity in that employers, employees or even consumers do in the context of being actors in this economy. Everything seems to have been reduced to that fairly dismal equation of what you make/have/do is worth this much money. In the context of the elements of a life, it’s pretty sterile stuff.

    Under the circumstances, I can understand why Jensen’s writing is particularly interesting.

    (Am I still on topic here? I apologize if I’ve wandered away a bit. And I’m sorry for hijacking your comments but I love ‘conversations’ like this.)

  13. Charlie (Green)
    Charlie (Green) says:

    Thanks again Dawn for advancing this line of thought.  (By the way, I think "mere" semantics is actually pretty useful; you’re right about multiple interpretations of credibility, and I liked all the things you said on that point).

    Interesting to hear your take on the Jensen piece.  I hear him saying that if you subject integrity to cost-benefit analyses–which is an almost automatic instinct for doing business–then you destroy integrity.  And if you destroy integrity, interestingly enough, you probably hurt trust, and hurt your business.
    So what I read him saying is there’s a stupidity at the heart of how business is done.  In the pursuit of profit, it tends to destroy integrity, then trust, then–profit. 
    I happen to quite agree with that view (perhaps I’m placing my own interpretation on his–keep me honest here). 
    That doesn’t mean acting with integrity is always the high profit thing to do, because acting from trust means you have to live without the hard-wired link between acttion and cost benefit.  But in the long run, and by and large, and for the most part, high trust does result in high profit.  The real disconnect then is not between business and integrity, but between integrity and the way business is so often done–as the short-term application of quantified selfishness.
    On top of that, all the live-serving quality issues you mention certainly apply as well.

    Or so it seems to me.

  14. Dawn
    Dawn says:

    You know, what’s funny about this is that, essentially, I agree with you but I get there from a slightly different angle.

    See, I don’t think that subjecting integrity to a cost-benefit analysis — or, to put it more accurately, subjecting the option to behave with integrity to a cost-benefit analysis — necessarily destroys integrity. I think it is possible for a business person to subject his options to this kind of analysis and to decide to take the "high road" by maintaining his integrity, with integrity.

    If we’re going to define "integrity" as being true to oneself, then surely the businessman who subjects his business choices to that cost benefit analysis is being true to his businessman-self.

    At the same time, it is entirely possible for him to perform that analysis and decide that the short term benefit of a lack of integrity (defined as honest and trustworthy) is not worth the cost to himself as a person or to the company in the long-term.

    Everything depends on context. The existence of the analysis, in and of itself, does not necessarily have to destroy integrity. And the performance of that analysis doesn’t have to destroy it either, depending on what value the individual involved places on behaving with integrity versus short term financial gain.

    Business, as an abstract concept or even as a concrete activity, has nothing to do with integrity or honesty or any other human values or morals, any more than playing football does. The game is what it is. Whether or not you choose to cheat is up to you, but cheating is not inherent in the act of playing.

    Which brings me back to exactly what you said to close your last comment: the real disconnect is between the act of doing business and the way of doing business.

    And here we both are … seated at the same table, even if we got here by different paths.


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