Bill Nygren: Chasing Short Term Profits At The Expense Of Stakeholders

In his latest Q3 2021 Market Commentary, Bill Nygren discusses the problem with companies chasing short-term profits at the expense of stakeholders. Here’s an excerpt from the commentary:

We believe that if stakeholders are mistreated, neither profits nor value can be maximized. CEOs can increase the next quarter’s or the next year’s profits by taking advantage of stakeholders—their employees, customers, suppliers and communities.

But, eventually, employees find new jobs, customers switch brands, suppliers find other buyers, communities withdraw zoning approvals and business value declines. The negative results of pursuing maximum short-term profits have given “profit maximizing” a bad reputation.

Sustainable profitability can only be achieved by treating stakeholders fairly. That’s why Oakmark’s research process includes examining customer satisfaction, employee turnover, supplier financial health and community relations. We have to consider these factors so that our estimate of business value is based on recurring earnings.

Further, we believe that the short-term costs of stakeholder-friendly actions are often overstated. They are usually expensed immediately because their lasting benefits can’t be precisely quantified.

You can read the entire commentary here:

Bill Nygren Q3 Commentary 2021