It’s no secret that large, publicly listed organisations struggle to successfully explore innovation due to the short-term interests of their investors.

Eric Ries, author of The Lean Startup, has been a vocal advocate of a long-term stock exchange to support innovation. In his work with executives of large companies, he found that most felt pressured to make choices in service of short-term interests, even at the cost of the long-term potential of the business. This often comes down to misaligned incentives in the public marketplace and it’s something that also comes up time and time again in my work with listed companies.

This is a significant challenge, especially today when technology is fast displacing dated business models, technologies and ways of work at an ever increasing pace. Yesterday’s models of the world, which includes the short-term nature of our stock exchanges, no longer make sense. Our stock exchanges don’t reward innovation in a time when companies need to be innovative more than ever - with half of the S&P500 expected to be replaced in the next ten years alone. The impact of this misalignment goes far beyond companies and investors but is felt by the economy and society as a whole.

Balancing the short-term interests of key stakeholders with the long-term potential of the organisation is a delicate one.

Bansi Nagji and Geoff Tuff, proposed in a 2012 HBR article, Managing Your Innovation Portfolio, that companies that allocated about 70% of their innovation activity to core initiatives, 20% to adjacent ones, and 10% to disruptive ones outperformed their peers.

This has since been the conventional wisdom in corporate innovation circles.

Ever since The Biggest Startup article came out in 2013, General Electric (GE) has been held up as a poster child for this dual transformation approach.

They established Fastworks, the organisation’s lean startup framework, trained thousands of middle and senior managers to practice it, were glorified in countless articles, including mine on How GE Saved 80% in Development Costs and formed much of the basis of Eric Ries’ new bestselling book on applying the lean startup in large companies, The Startup Way.

But despite all of that, chief spearhead behind the movement and long-serving CEO Jeff Immelt was recently ‘retired’ from the organisation after 16 years.

Why? As Steve Blank points out in his observations on Immelt’s departure, GE’s stock-market value fell by about half during his tenure. “Its stock is trading where it was 20 years ago. So far in 2017, GE is the worst performing stock on the Dow Jones Industrial average.”

The move, Steve says, was conceived by activist investors Trian Partners who purchased 1.5% of the company and went on to influence other large institutional investors to oust Immelt and replace him with John Flannery, who has pledged to unload $20 billion of GE businesses in the next two years, stating that “everything is on the table” and that includes innovation.

I often write and talk about getting and maintaining buy in and how while senior executives and investors are happy to support innovation programs, as soon as dark clouds form above, innovation programs and their ambassadors are the first to go. In GE’s case, their vice chair for innovation, Beth Comstock, has already been replaced by Flannery by somebody from operations.

Already Flannery and the activist investors who got him there resemble a Gordon Gecko type of character. Who can forget Gecko, played by Michael Douglas in 1987s Wall Street, urging a young Bud Fox to “buy Bluestar Airlines and expand the company, use the savings achieved by union concessions and cut the overfunded pension”. This is simply a cost cutting pursuit to increase margins and ramp up short term returns, ultimately at the expense of the ongoing sustainability of the company. The additional problem with this approach is that after you’ve pillaged the towns, where do you go from there?

So how do organisations combat activist investors and short-termism?

While this is by no means easy to answer, nor do I imagine for a second that the following is by any means conclusive, a number of considerations for CEOs of large companies might include:

Don’t forget your core

As Nagji and Tuff pointed out, companies should invest the lion’s share of R&D into core activities. It’s much easier to maintain your innovation programs when the metric that the markets measure you by - your stock price - is commendable. Of course, this is easier said than done, especially in today’s environment of increasing volatility, uncertainty, complexity and ambiguity.