The Disconnect Between Short-term Behaviors and Short-term Results
One of the most frequent trust questions I get is typically phrased as a dilemma: how can we establish trust-based long-term relationships in a culture that values short-term performance?
But rarely have I had the question posed so clearly and sharply as in a recent discussion with an investment banker. Paraphrasing, he said:
“Listen, I make no apologies for being 100% money-motivated. That’s why I’m in the business I’m in. If the firm changed our incentives tomorrow to a weekly basis, I’d be there in a heartbeat – doing what I have to do, week to week. So when you talk about long-term trust, I frankly glaze over. My timeframe is what maximizes my income – period.”
You can trust investment bankers to cut to the chase. It’s their job, and they’re very good at it.
But here’s what he missed.
There’s an unspoken assumption in his stark phrasing of the issue. That unspoken assumption is:
The best way to maximize short-term income is through short-term behaviors.
And that assumption is dead wrong. Here’s why.
The Disconnect Between Behavior and Results
The point is obvious if you think about strategy. Which approach to corporate strategy is likely to be more successful over the next five years?
- Company A, which revamps its entire corporate strategy every quarter, or
- Company B, which sets its corporate strategy over a five-year timeframe, and occasionally tunes it
Pretty clearly, changing a long-term strategy on a quarterly basis is the recipe for long-term bad results. But notice – long-term bad results happen a quarter at a time. Five years of bad performance shows up in 20 bad quarters.
The basis for strong short-term results (quarterly in this case) is long-term behavior – not short-term behavior.
What’s true for strategy is true for relationships as well. If you manage your client relationships by viewing them through the prism of quarterly (or monthly, or weekly) sales and income reports, those clients are bound to notice.
Few things destroy client relationships like a lame, semi-apologetic request like, “Could you maybe move that sale up a few weeks so I can get credit this quarter?” Clients are not stupid, and there’s no way to dress up such a self-serving request for monetization of the relationship so as to disguise what it really is. Such a request will backfire on you.
So will any such behavior that betrays your true objective – if your true objective is to treat your clients like transactional piggy banks, rather than as the long-term relationships we claim to aspire to.
Long-term Greedy
Former Goldman Sachs senior partner Gus Levy is credited with coining the phrase “long-term greedy.” In typical Wall Street fashion, the phrasing was perhaps calculated to sound offensive – but in fact, it expresses something completely commonsensical, and highly consistent with trust. I endorse it myself.
What Levy meant was that the best way to do well in the long-run – and, by implication, in each quarter on the way to the long run – is to behave in a long-term manner. That means: keeping your word, taking care of clients, acting with integrity, putting clients’ needs first – all the time.
If you behave that way – in the long-term, as a matter of habit and principle – then you will actually do far better in the long run (and by extension, in the accumulation of short-terms on the way there) than someone who is constantly seeking to optimize only the next quarter.
Note this does not necessarily have anything to do with ethics. You can be, as my investment banking friend claimed to be, 100% motivated by money, and still act in ways that are largely indistinguishable from someone whose trustworthy behavior is ethics-based. You just have to not be stupid. And Gus Levy was assuredly not stupid.
The next time you hear someone say. “I can’t do that trust stuff because all the incentives around here are short-term,” explain to them why there’s nothing wrong per se with short-term incentives. The problem is stupidly believing that short-term behavior is the best way to get there.
The best short-term results come about from operating on long-term principles – and reaping the benefits every quarter along the way.
Charlie- in certain industries dominated by greed, putting client’s needs first is inconsistent with creating a high trust culture, regardless of what may be said. If you don’t meet your monthly “numbers” you are ushered out the door. Take a look at the trustworthiness of these 16 sectors.
https://uploads.disquscdn.com/images/73c17e24e5c56d04a134b16b1e65588108a4c73ebd02e5d8adff89fc3e4190bd.png
Barbara, thanks for sharing that graphic. [To anyone who doesn’t know Trust Across America’s work, which Barbara is sharing here, this is powerful data from a massive database on corporate trustworthiness].
Love the data, but I would differ with your conclusions. We both agree that finance (specifically Wall Street) is quite familiar with greed, but I would argue that resorting to short-term behavior is not a result of short-term incentives – it’s a result of stupidity.
When Gus Levy wrote his “long-term greedy” comment, he was saying that long-term greed is best satisfied by long-term client-focused behavior – and, since the long term is made up of lots of short-term results, short-term results are ALSO best served by long-term behavior.
Wall Street forgot this insight in the heyday of 2007, when the dominant phrase became “IBGYBG” – “I’ll be gone, you’ll be gone, do the deal.” In my terms, they fell prey to the faulty belief that short-term results are best generated by short-term behavior. Or, also in my terms, they got stupid.
Levy was right: the problem is not short-term incentives, the problem is wrongly believing that the best way to achieve short-term results is to BEHAVE in short-term ways. The truth – fairly evident, on reflection – is that both long-term and short-term results are best served by behaving in long-term client-focused ways.