6  Why Value Value?
drafty. Unless the seller discloses those facts, a potential buyer may have great 
difficulty detecting them, even with the help of a professional house inspector.
Despite such challenges, the evidence strongly suggests that companies 
with a long strategic horizon create more value than those run with a short-
term mindset. Banks that had the insight and courage to forgo short-term 
profits during the last decade’s real-estate bubble, for example, earned much 
better total shareholder returns (TSR) over the longer term. In fact, when we 
studied the patterns of investment, growth, earnings quality, and earnings 
management of hundreds of companies across multiple industries between 
2001 and 2014, we found that companies whose focus was more on the long 
term generated superior TSR, with a 50 percent greater likelihood of being in 
the top decile or top quartile by the end of that 14-year period.6 In separate 
research, we’ve found that long-term revenue growth—particularly organic 
revenue growth—is the most important driver of shareholder returns for com-
panies with high returns on capital.7 What’s more, investments in research 
and development (R&D) correlate powerfully with long-term TSR.8
Managers who create value for the long term do not take actions to in-
crease today’s share price if those actions will damage the company down 
the road. For example, they don’t shortchange product development, reduce 
product quality, or skimp on safety. When considering investments, they take 
into account likely future changes in regulation or consumer behavior, espe-
cially with regard to environmental and health issues. Today’s managers face 
volatile markets, rapid executive turnover, and intense performance pres-
sures, so making long-term value-creating decisions requires courage. But the 
fundamental task of management and the board is to demonstrate that cour-
age, despite the short-term consequences, in the name of value creation for the 
collective interests of shareholders, now and in the future.
Short-Termism Runs Deep
Despite overwhelming evidence linking intrinsic investor preferences to 
long-term value creation,9 too many managers continue to plan and execute 
strategy—and then report their performance—against shorter-term measures, 
particularly earnings per share (EPS).
6 Measuring the Economic Impact of Short-Termism, McKinsey Global Institute, February 2017, www 
.mckinsey.com.
7 B. Jiang and T. Koller, “How to Choose between Growth and ROIC,” McKinsey on Finance, no. 25 
(Autumn 2007): 19–22, www.mckinsey.com. However, we didn’t find the same relationship for compa-
nies with low returns on capital.
8 We’ve performed the same analyses for 15 and 20 years and with different start and end dates, and 
we’ve always found similar results.
9 R. N. Palter, W. Rehm, and J. Shih, “Communicating with the Right Investors,” McKinsey Quarterly 
(April 2008), www.mckinsey.com. Chapter 34 of this book also examines the behaviors of intrinsic and 
other investor types.