Want Success? Think Long-Term and Take Risks—Sir Martin Sorrell
This cocktail of pressures is not conducive to long-term strategic thinking, and the financial world’s obsession with quarterly results doesn’t help writes Sir Martin Sorrell, Founder and CEO, WPP
This cocktail of pressures is not conducive to long-term strategic thinking, and the financial world’s obsession with quarterly results doesn’t help, writes Sir Martin Sorrell, Founder and CEO, WPP.
Corporate America is shrinking—at least by one important measure. In five of the six quarters to June 2016, across the S&P 500, share buy-backs and dividends exceeded retained earnings.
From around 60% in 2009, the ratio of payouts and buy-backs to earnings has risen inexorably, passing 100% at the beginning of 2015 and reaching a staggering 131% in the first quarter of 2016.
If you imagine the S&P 500 to be one company, that company ceased to grow at the start of last year and shrank by nearly a third in the first three months of 2016. While the FTSE 100 may not have gone into reverse, a similar trend can be observed. The dividend-payout ratio has climbed from less than 40% in 2011 to over 70% in 2016.
Unsurprisingly in this context, corporate investment as a proportion of GDP has continued to decline. Businesses are choosing to return funds to shareholders rather than invest them back into their operations. Yet there is no shortage of cash to invest. Companies are estimated to be sitting on more than $7 trillion of net cash worldwide—a form of corporate inertia that will continue into 2017 and beyond.
So why are firms refusing to spend? The collapse of Lehman Brothers, and the carnage that followed, left deep scars on the collective corporate psyche. It has fundamentally changed the attitude to risk of an entire generation of executives.
The past eight years have been an era of low inflation, low pricing power and low growth, with disruption coming from all directions—from tech startups to activist investors and zero-based budgeters. The average managerial life expectancy of a CEO in America is between six and seven years. This falls to between five and six years for a chief financial officer and a mere two to three years for a chief marketing officer.
At the same time, a great flock of geopolitical grey swans (known unknowns) clouds the horizon, draining confidence: the global rise of populism, accompanied by ever-greater mistrust of institutions and corporations; intractable conflicts from Ukraine to the Middle East; the migrant crisis; terrorism. The slowing of major economies like Brazil and China, fiscal-deficit issues in America and Europe, and the eventual reversal of policies on quantitative easing and low interest rates also play on the minds of business leaders.
Businesses hardly needed another reason to put off or cancel investments. And then along came Brexit. Its full impact will only be known years down the line. The divorce could take the best part of a decade. The likely consequence is slower growth than would otherwise have been the case. And that’s before the potential independence domino effect: renewed calls for Scotland to leave the United Kingdom, and the possible disintegration of the European Union.
This cocktail of pressures is not conducive to long-term strategic thinking, and the financial world’s obsession with quarterly results doesn’t help. One survey revealed that nearly 80% of executives admit they would “take actions to improve quarterly earnings at the expense of long-term value creation”.
In this environment, procurement and finance departments (rather than growth-drivers such as marketing and R&D) have the whip hand. Risk-aversion and short-termism rule in the world’s boardrooms. This attitude is entirely understandable—and entirely wrong. Calculated risk-taking, in the form of investment, is the lifeblood of any business that wants to be successful in the long-term.
This is particularly true when it comes to investment in brands—usually a company’s most precious asset. If you were to treat the world’s ten most valuable brands from the past ten years (as measured by Millward Brown’s annual BrandZ survey) as a stock portfolio, it would have outperformed the S&P 500 index by almost 75% and the MSCI World index by more than 400%.
I don’t expect companies to undergo a Damascene conversion in 2017. But there’s a chance we will see the beginning of a change for ?the better. Powerful institutions, including BlackRock, Legal & General and the British government, are pushing for a different approach—one based on investment in growth over the long term rather than slicing costs to meet quarterly forecasts.
An initiative launched by McKinsey and the Canada Pension Plan Investment Board in 2013, called Focusing Capital On The Long Term, is set to gather speed in 2017. In July it appointed its first CEO, who will lead its development into a not-for-profit global organisation dedicated to encouraging long-term approaches in business and investment.
Projects like this may be the first steps towards restoring the animal spirits that have been so conspicuous by their absence in the post-Lehman years. The long-term health of the global economy depends on it.
(This article was first published in The Economist - The World in 2017)
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E4M Our strategy is to target younger audiences through Sports: Rajiv Dubey, Dabur
The Head of Media at Dabur India spoke exclusively to exchange4media on the World Cup, associating with Indian Idol, the company’s digital spending and much more
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The 140-year-old company is going big on key sporting events, World Television Premiere (WTP) movies and reality shows. It is now gearing up to become the title sponsor of popular talent show ‘Indian Idol’ on Sony TV for the first time, shared Rajiv Dubey, who leads the media strategy at Dabur.
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ShareSwapan Seth's new book 'COOL' is out
The book is a reflection of the author's 'eclectic taste across categories'
Advertising professional and art collector Swapan Seth has announced the launch of his new book COOL. The book is described as "a ready reckoner to the hip and the happening, of the known and the very unknown."
The book is a reflection of the author's "eclectic taste across categories: from boltholes to exotic hideaways."
COOL has been published by Simon & Schuster India and is available on Amazon.
Seth is an ad veteran with a long and illustrious career in the industry. He became the youngest-ever Creative Director at Clarion at age 24. He was VP at 26 at Trikaya Grey. Two years later, he started his agency Equus.
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Disney Star signs 9 sponsors for Asia Cup PAK
Charged by Thums Up, Nerolac Paint+, Amazon Pay, Jindal Panther, My11Circle, MRF, Samsung Galaxy Z Flip5, Wild Stone and Thums Up come on board
e4m Staff Disney Star has signed nine broadcast and digital streaming sponsors for the upcoming Asia Cup.
Charged by Thums Up, Nerolac Paint+, Amazon Pay, Jindal Panther, My11Circle, MRF, Samsung Galaxy Z Flip5, Wild Stone and Thums Up have come on board for the upcoming tournament.
As reported earlier by exchange4media, Disney Star has sought Rs 26 crore for the co-presenting sponsorship on TV and Rs 30 crore for Disney+ Hotstar.
According to industry sources, the associate sponsorship on Star Sports has been priced at Rs 19.66 crore, whereas for the ‘powered by’ sponsorship on Disney+ Hotstar, the broadcaster is seeking Rs 18 crore.
As per the information available with exchange4media, Disney+ Hotstar has three sponsorship tiers-- co-presenting (Rs 30 crore), powered by (Rs 18 crore) and associate sponsorship (Rs 12 crore). The broadcaster is offering an estimated reach of 120-140 million for co-presenting sponsors, 90-100 million for powered by and 60-70 million for associate sponsorship.
A spot buy for 10 seconds has been priced at Rs 25 lakh for the India vs Pakistan matches, while for the non-India matches, the ad rate for 10 second is Rs 2.3 lakh. The India matches plus the final for ODIs has been priced at Rs 17 lakh per 10 seconds.
Asia Cup is scheduled to be held from 30 August, 2023, to September 17, 2023.
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Sorted 360 wins creative & social media mandate of Reliance Mall
The agency will manage offline and online campaigns for Reliance Mall
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“Sorted 360's commitment to pushing the boundaries of creative communication aligns perfectly with Reliance Malls' ethos. With a pan-India presence spanning across 19 cities and growing, Reliance Malls has consistently captivated customers by offering an array of Reliance brands and third-party fashion & lifestyle brands. The mall has established an unparalleled connection with its patrons through superior quality, a remarkable value proposition, and an unmatched shopping experience,” it read further.
"We are thrilled to welcome Sorted 360 as our trusted partner in advancing our brand presence across the nation," said the Head of Marketing at Relaice Malls. "Their proven expertise in retail, shopping center management, and innovative creative strategies make them the perfect fit for our vision."
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KlugKlug onboards Hemang Mehta as Country Manager for Indias
Mehta was most recently Head of Agency Relationships at Network 18 Media & Investments
KlugKlug has appointed Hemang Mehta as its Country Manager for India.
Mehta will play a pivotal role in driving KlugKlug's growth and expansion within the Indian market and be responsible for Sales & GTM Strategy
Prior to that, he has also represented organisations like Exponential (now VDX.tv), India Today Digital and Rediff.com. His expertise spans various domains including digital media sales, mobile marketing, media planning, and buying, social media marketing, and more.
Hemang Mehta expressed his enthusiasm about joining KlugKlug, saying, "I am thrilled to be a part of KlugKlug, a forward-thinking platform that is reshaping the influencer marketing landscape. As much as I look forward to collaborating with the exuberant team at KlugKlug, I am super excited to interact with the brands to deliver powerful data-backed Influencer solutions that will guarantee business outcomes."
Commenting on the appointment, Kalyan Kumar, Co-Founder and CEO of KlugKlug, stated, "We are excited to welcome Hemang Mehta to our team as the Country Manager for India. His extensive experience in digital media sales and marketing will be instrumental in driving our efforts to provide influencer marketing solutions to our clients. We believe Hemang's leadership will be key in scaling our operations and expanding our reach within the Indian market."
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