Center for Effective Public Management

Corporate Purpose Initiative

A bull figure is pictured in front of the German share price index DAX board at the German stock exchange in Frankfurt (REUTERS/Lisi Niesner).

Paper

Can Executive Compensation Reform Cure Short-Termism?

March 18, 2013, Andrew C.W. Lund and Gregg D. Polsky

Gregg D. Polsky and Andrew C.W. Lund analyze whether senior managers are too focused on short-term results at the expense of long-term interests. Polsky and Lund entertain the idea of combating short-termism through executive compensation reform yet they find that these reforms will likely be ineffective due to other pressures on managers to maintain current stock prices.

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About the Initiative

Understanding the true purpose of the corporation matters.  Partly because management and directors need to know the purpose of the enterprise, and partly because corporate purpose affects not only how public policy and regulations are shaped, it helps inform how Americans feel about their responsibility for each other.  Important questions that Brookings experts seek to answer with their work in this area include:

• What is the purpose of the corporation?

• Why do businesses incorporate?

• What benefits accrue to an enterprise as a result of incorporation?

• Where do those benefits come from and at what cost?

• What should the grantor of those benefits expect in return?

• How does this affect the duty and responsibility of officers and directors?

Initiatives Under the Center for Effective Public Management