January 01, 2015

How Long Term Is Your Long-Term Planning?

Directors & Boards

In his latest splash for Directors & Boards, Philadelphia partner Doug Raymond asks readers, “How Long Term Is Your Long-Term Planning?” The so-titled column discusses the long-running debate regarding board obligations and whether directors of public corporations should focus on a more traditional long-term strategy or a more market-driven, short-term approach of no more than 90 days. Doug notes that the trend toward the latter has been driven largely by unrelenting reporting imperatives, pressures from shareholder activists, and the prevailing belief among boards that “maximizing share value, even outside of a sale context,” is one of the primary objectives.

Doug also observes that the foundational cases of Delaware corporate law – which privileged the long-term strategy – were predicated on antiquated ideas about absentee owners and faithful managers: “Today, this abstract model does not really reflect the markets in which many public corporations operate.”

So what are corporations to do when corporate law fails to account for these shifts in engagement and fluctuating market and economic conditions? Doug maintains there “is not one right choice for the appropriate horizon for the board’s strategic plan.” It is up to directors to exercise discretion and flexibility.

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