In a World Undergoing Seismic Change, Corporations Need to Think Long-Term

David J. Teece

Lessons learned from a panel of leading CEOs, GCs, academics, and foreign policy experts

In 1981, when other oil companies stockpiled reserves in the wake of the Iran–Iraq war, Shell sold off its excess supply just before a glut of cheap oil sent prices tumbling. The energy giant similarly had been well prepared for the 1973 oil crisis.

How? In the early 1960s, Shell executives began thinking about the future in a new and different way. Their “scenario planning”—a practice that continues to this day—is not about forecasts or predictions, which often are wrong and assume the world tomorrow will be like it is today. Rather, the method is about developing stories that embrace uncertainty, intuition, dynamism, and open dialogue.

If the world was uncertain when Shell first started scenario planning, it is even more so now: COVID, the war in Ukraine, the rise of China—take your pick. But when I look at corporations, I see few long-term strategies. Managers aren’t being trained with a geopolitical, systems-level understanding of our increasingly interconnected world. This needs to change.

As part of that effort, at the Asia Society’s recent Coal + Ice festival at the Kennedy Center, I convened a panel of leading CEOs, general counsel (GC), academics, and foreign policy experts, including some of my BRG colleagues. Over the course of our conversation, we discussed how corporations can start thinking and collaborating differently, with an eye toward long-term, systemic, and geopolitical considerations.

Collaboration is needed, but incentives are off

Corporations have the opportunity to help mold the world in which they operate, whether that involves promoting democracy, addressing climate change, or preventing another pandemic. But to do so, our panelists agreed, corporations must collaborate with one another and the public sector in a systemic way.

“The challenges that we have are not just diplomatic challenges, not just governmental challenges,” one panelist said. “How do you shape that world as opposed to simply react to it when it unfolds on you in ways that might be unexpected?”

As another panelist explained, corporations are economic engines that will do pretty much whatever they have a monetary incentive to do. Right now, those incentives are geared toward short-termism—giving priority to immediate profits and results instead of thinking long-term.

In 1960, for instance, the average shareholder held stock for eight years. Today, it’s less than six months. Because of this, corporate leaders struggle to balance the long view they know will add value with the often short-term demands of shareholders and activists. What’s more, CEOs and board members now have their own stock options.

“What can the board—and in particular, the general counsel—do to [convince] the executive office to pay attention to these issues?” a panelist asked. “They don't have to use stock options vesting over five years. Try ten years. Try fifteen years.”

Shifting from shareholder capitalism to a system where corporations factor into their decisions the interests of stakeholders—including employees, suppliers, and local communities—also will mean doing more to shore up support for those moves.

Panelists cited rising income inequality as a headwind. While CEO pay has risen 1,322 percent since 1978, the average hourly wage has gone up only 10 percent. “We must figure out a way to make certain at home we have the people behind us to try to shape the world we all want to live in,” one panelist said.

Technological leadership

Though the United States still leads the world in research and development, China and other rivals are gaining ground rapidly and will eclipse the US if present trends continue US public and private investment in R&D now accounts for about 30 percent of the global total, down from 69 percent in 1960. US businesses play a critical role in this landscape, spending more than three times as much as the federal government.

But our panelists noted that the prevalence of short-term thinking means US businesses may not be capturing the full value of that R&D—at least when compared to China. Short-termism, for example, contributed to Taiwan and China becoming the world’s leaders in semiconductor production. US companies proved less willing to make big capital-intensive investments that might not quickly deliver shareholder returns, leaving the US increasingly dependent on overseas suppliers.

Regulators have a hand in this too. One panelist noted that the US’s environmental and tax policies make it difficult for companies to build big domestic semiconductor fabrication plants.

“It’s not going to be easy to catch up,” said a panelist, adding that investments by Intel and others will still leave the US several steps behind market-dominating Asian chip makers.

Several potential solutions arose in our discussion. Of course, companies should increase R&D investment and elevate leaders with backgrounds in technology—not just finance. More broadly, public–private partnerships among liberal democracies present opportunities to lessen technological dependence on China and other competitors (e.g., if countries team up on efforts to build more geographically diffuse semiconductor supply chains).

Joint actions taken against Russia after the invasion of Ukraine demonstrate that such collaborations can happen—for example, the export controls agreed upon by Taiwan, South Korea, the European Union, Japan, and the US. But the likelihood of future collaborations depends again on incentives and systemwide structures. To that end, a recent article that I coauthored suggests two new policy tracks: “first, cross-border, applied R&D and innovation collaborations; and second, economic and security policies that support collaboration with other liberal democracies to limit the risks and vulnerabilities arising from potential technological dependence on geopolitical competitors.”

Potential examples include a US government agency with sufficient budget and capacity taking the lead on a sustained intragovernmental effort to coordinate and fund cross-border applied R&D.

ESG + democracy

Panelists broadly saw environmental, social, and governance (ESG) efforts as a potential entry point for corporations to start thinking anew and more systemically about stakeholder issues. Technology leadership and promoting democracy could factor into ESG considerations, with corporations scoring themselves on how much they have supported the free world and their dependence on autocrats.

“We can use the lesson of ESG with the focus on climate,” a panelist said. “We've seen a lot of progress in the boardroom, a lot of progress with measurement, a lot of progress with transparency.”

Interest in ESG stemmed largely from investors who began to demand such information, panelists said. If investor interest in areas like supply-chain resilience and technological independence deepens over time, that could push the needle even more. Panelists observed that some boards already are responding to those demands and taking a longer-term point of view, more focused on stakeholders. Part of the board’s work will entail ensuring CEOs understand these issues and can communicate those efforts effectively to investors.

Again, incentives must play a role. That’s where regulations may come in. For instance, some rules aimed at protecting shareholders and others from accounting errors and financial fraud, which require quarterly reporting of corporate results, also may reinforce CEOs’ tendency toward short-termism. But the SEC’s proposal that public companies disclose climate-change risk might be a useful step in promoting a more measured, impactful focus on ESG.

Geopolitics drive business models

As one panelist noted, we live in a world shaped by certain post-Cold War conditions, including the rise of information technology and the addition of new countries into the international order. By the 1990s, when Francis Fukuyama argued that the ascendancy of Western liberal democracy represented “the end of history,” many boards and C-suites took the view that geopolitics didn’t matter that much anymore.

But recent events have upended those assumptions. From the pandemic and the resulting supply-chain crises to China’s dominance on the global stage and the Russian invasion of Ukraine, we’ve seen a breakdown in the old order. Russia’s recent actions are shaking up energy markets, and some panelists suggested that a move by China into Taiwan and other actions in the South China Sea could create similar disruptions in other industries, including semiconductors.

Business leaders need to adapt their risk analyses to this new and evolving geopolitical climate. While this poses particular challenges for incumbents who excel in navigating the world as it was, our panelists expressed hope that the US and other liberal democracies are well suited for the creative destruction necessary to craft new business models that respond to—and can help shape—our changing world.

Call to action

As the panel concluded, panelists and audience members discussed paths forward. GCs, for example, could help shape strategies and sensitize management to geopolitical issues—perhaps even acting in the role of corporate secretary to push boards to think long-term. Convening groups of GCs and other corporate leaders where they can develop ideas, dialogue with experts, and find ways to collaborate would be a great place to start.

In sum? To prepare for an increasingly uncertain future and reorient business models around long-term thinking, we must come together in the present.

“No one democracy, and certainly not the United States alone, can tackle the new future. Somehow, we have to figure out new ways of cooperation between nation–states and between corporations,” a panelist said. “We're here at the crossroads, and so it's time for new thinking.”