Page 81 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

lenges companies face when operating in a low-growth envi-
ronment. Not only will dividends become a more important
component of value creation (while capital gains, which are
driven mainly by growth, will become less important), investors
also may prefer less risky investment strategies.
In a recent survey, BCG questioned a broad cross-section of
professional investors and market analysts in the United States
and Europe. We asked them how they think companies should
be responding to the downturn. Their responses suggested a
sea change in perspectives and priorities from just a couple of
years ago:

Focus on the long term. During the past two decades, many
investors became focused on near-term results, notably in
relation to growth in revenues and earnings per share
(EPS). In light of the downturn, however, investors claim
to have shifted away from this short-term focus on earnings
toward a new willingness to support management teams
that want to manage for the long term. They are giving
chief executives permission to focus on doing what needs to
be done to create long-term competitive advantage.
This is not to say that careful cost cutting and tight
management won’t remain critical. But the investors in
the survey were adamant that even as companies do what
is necessary to secure their financial viability, they should
avoid what some called “burning the furniture”—that is,
cutting so much that a company damages its future
growth prospects—just to meet quarterly EPS guidance.
Nearly three-quarters (72 percent) of the respondents in
our survey said that they favor companies that make
long-term investments to strengthen their competitive

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