In the world of business,
the notion of success has evolved over the years. Traditionally, short-term profitability has been the hallmark of achievement for corporations, often overshadowing the importance of long-term corporate governance.
However, as we navigate a landscape of economic policy changes, such as President Tinubu's exchange rate unification policy and the removal of fuel subsidies, it is imperative for high-level industry experts and directors to reevaluate their perspectives on success. This blog delves into the intricate relationship between short-term profitability and long-term corporate governance, exploring how these dynamics are influenced by contemporary economic policies.
The Tug of War: Short-Term Profitability vs. Long-Term Governance
In the pursuit of immediate financial gains, companies might prioritise strategies that yield quick profits. This often leads to decisions that focus on cost-cutting, short-lived market trends, and aggressive expansion. While this approach may boost quarterly results and appease shareholders in the short run, it can undermine a company's resilience in the face of economic fluctuations and shifts in policy.
Long-Term Corporate Governance
On the other hand, a focus on long-term corporate governance involves strategies that ensure a company's sustainability and growth over time. This includes investing in research and development, nurturing employee talent, and establishing ethical business practices. Though the returns might not be instantaneous, these efforts lay the foundation for lasting success that is adaptable to changing economic circumstances.
The Impact of Economic Policy Changes
· The Exchange Rate Unification Policy
President Tinubu's policy seeks to unify the exchange rate, which can have both short- and long-term effects. In the short term, companies may face currency fluctuations that impact profitability, requiring them to adjust pricing strategies and manage supply chain disruptions. In the long term, a unified exchange rate can lead to stability and improved investor confidence, encouraging sustainable growth and long-term governance strategies. However, a lot more needs to be done to ensure the availability of Fx such that the perceived danger of parallel markets can be neutralised. As long as the Dollars continue to be unavailable in the bank for business transactions, consumers will continue to patronise alternative channels that change the premium and ultimately sustain two different windows of exchange. Invariably making a mockery of the exchange rate unification strategy.
· Removal of Fuel Subsidy
The removal of fuel subsidies can trigger immediate cost increases for businesses, affecting profitability as we have seen so far. However, this policy change is also driving change and innovation in energy-efficient technologies and renewable energy sources, promoting corporate governance practices aligned with environmental sustainability. Over time, companies that adapt to these changes will likely position themselves as industry leaders.
· Balancing Short-Term and Long-Term Goals
Successful companies strike a balance between short-term profitability and long-term governance. They recognise that sustainable profitability requires investments in governance that foster innovation, talent development, and ethical conduct. This approach ensures a company's ability to weather policy changes and economic fluctuations.
· Measuring Success Beyond Profits
The metrics for success should extend beyond immediate profits. Long-term growth, employee satisfaction, environmental impact, and societal contributions should also be integral to the definition of success. This broader perspective aligns with the values of responsible corporate governance.
Navigating the Future
· Adaptation and Flexibility
Companies must remain adaptable to changing economic policies and global trends. This calls for flexible business models that can pivot swiftly while adhering to the principles of sound corporate governance.
· Collaboration with Policy Makers
Industry experts and directors should engage with policymakers to ensure that economic policies are conducive to both short-term economic stability and long-term corporate sustainability. This collaboration can lead to policies that incentivise responsible business practices.
In an era of dynamic economic policy changes, the dichotomy between short-term profitability and long-term corporate governance becomes more significant than ever. As industry experts and directors, it is our responsibility to redefine success, considering metrics that encompass resilience, innovation, and ethical conduct. By harmonising short-term goals with enduring governance strategies, businesses can thrive in the face of uncertainty and contribute positively to society's well-being. President Tinubu's exchange rate unification policy and the removal of fuel subsidies serve as reminders that success should not be confined to financial quarters but should span the test of time.
and Advocacy Department, IoD Nigeria
28, Cameron Road, Ikoyi, Lagos, Nigeria