8  Why Value Value?
and boards (rather than investors, analysts, and others outside the company) 
as the greatest sources of pressure for short-term performance.14
The results can defy logic. At a company pursuing a major acquisition, we 
participated in a discussion about whether the deal’s likely earnings dilution 
was important. One of the company’s bankers said he knew any impact on 
EPS would be irrelevant to value, but he used it as a simple way to commu-
nicate with boards of directors. Elsewhere, we’ve heard company executives 
acknowledge that they, too, doubt the importance of impact on EPS but use it 
anyway, “for the benefit of Wall Street analysts.” Investors also tell us that a 
deal’s short-term impact on EPS is not that important. Apparently, everyone 
knows that a transaction’s short-term impact on EPS doesn’t matter. Yet they 
all pay attention to it.
The pressure to show strong short-term results often builds when busi-
nesses start to mature and see their growth begin to moderate. Investors con-
tinue to bay for high profit growth. Managers are tempted to find ways to 
keep profits rising in the short term while they try to stimulate longer-term 
growth. However, any short-term efforts to massage earnings that undercut 
productive investment make achieving long-term growth even more difficult, 
spawning a vicious circle.
Some analysts and some short-term-oriented investors will always clamor 
for short-term results. However, even though a company bent on growing 
long-term value will not be able to meet their demands all the time, this con-
tinuous pressure has the virtue of keeping managers on their toes. Sorting 
out the trade-offs between short-term earnings and long-term value creation 
is part of a manager’s job, just as having the courage to make the right call is 
a critical personal quality. Perhaps even more important, it is up to corporate 
boards to investigate and understand the economics of the businesses in their 
portfolio well enough to judge when managers are making the right trade-offs 
and, above all, to protect managers when they choose to build long-term value 
at the expense of short-term profits.
Improving a company’s corporate governance proposition might help. In 
a 2019 McKinsey survey, an overwhelming majority of executives (83 percent) 
reported that they would be willing to pay about a 10 percent median pre-
mium to acquire a company with a positive reputation for environmental, 
regulatory, and governance (ESG) issues over one with a negative reputation. 
14 Commissioned by McKinsey & Company and by the Canada Pension Plan Investment Board, the 
online survey, “Looking toward the Long Term,” was in the field from April 30 to May 10, 2013, and 
garnered responses from 1,038 executives representing the full range of industries and company sizes 
globally. Of these respondents, 722 identified themselves as C-level executives and answered questions 
in the context of that role, and 316 identified themselves as board directors and answered accordingly. 
To adjust for differences in response rates, the data are weighted by the contribution of each respon­
dent’s nation to global gross domestic product (GDP). For more, see J. Bailey, V. Bérubé, J. Godsall, and 
C. Kehoe, “Short-termism: Insights from Business Leaders,” FCLTGlobal, January 2014, https://www 
.fcltglobal.org.