“British firms are guilty of taking a short-term, quick fix approach to cost-cutting, characterised by investment cuts, recruitment freezes and staff layoffs,” according to a new global study from PricewaterhouseCoopers, published today.
Demonstrating the short-termism in British business’ actions, the research reports that two-thirds (66%) of UK chief financial officers – the highest in the study – concede that the costs they are currently cutting from their businesses will creep back within two to three years.
Shareholder sovereignty This approach to the health of companies is driven be a keener desire to impress analysts and shareholders, than to improve the long-term prospects of the business.
The report claims that whilst UK financial officers understand the benefits of strategic long-term cost reduction, they are failing to practice what they preach.
For example, whilst 96% of UK respondents agree that significant short-term cost reduction programmes can be strongly detrimental to staff morale and loyalty, 80% of firms have imposed a freeze on recruitment and nearly 64% have reduced staff.
Whilst 90% agree that, during a downturn, companies should be willing to invest to add long-term value to the business, 46% have deferred or cancelled investment, with another 30% cutting back on web and e-business development.
Such moves have been particularly prevalent in the media sector over the last twelve months.
“UK companies are failing to differentiate between good costs and bad costs and shareholder appeasement is winning out over long-term strategic management,” warns Jonathan Tate, partner at PricewaterhouseCoopers and sponsor of the report – Strange Days – Are Businesses Equipped To Catch Opportunity In An Unpredictable World?.
Comment This is a criticism that has been levelled at shareholder-centric UK business marketplace for a number of years; the argument being that shareholders are interested primarily in boosting stock price for quick-fix financial gains and are largely uninterested in the ins and outs of building a soundly operating business and, unfortunately, one does not always lead to the other.
