ACTU concerned about “short-termism”

The secretary of the Australian Council of Trade Unions (ACTU), Greg Combet has expressed concern that superannuation funds are too often being placed under pressure to achieve good short-term returns at the expense of long-term consequences.

Commenting on the issues which emerged from the James Hardie compensation case, Combet said that the pursuit of short-term horizons too often led to people failing to recognise long-term social and environmental considerations.

“Superannuation funds are supposed to be long-term investors focused on “a lifetime of difference” for our members in terms of their retirement incomes,” he said. “But we are constantly under pressure to get good short-term returns, particularly in a choice environment.”

Combet said that it was in these circumstances that there was a tendency to reward or punish our fund managers on the basis of relatively short-term performance against a benchmark index.

“The fund managers in turn, buy and sell short-term so they keep their investment mandates and little research focuses on long term risk and valuation issues associated with company performance,” he said. “Individual company decision making and their executive compensation systems are reinforced by this ‘short-termism’ and more often than not respond accordingly.”

Mr Combet said the regulatory environment had little to say about continuous disclosure on long-term social or environmental impacts of company behaviour, and the analysts had little incentive and fewer tools of the trade to help them take the long-term into account when assessing a company’s capacity to reward shareholders.