Matt's August Update: Why Long-Term Leadership Matters - 7investing 7investing
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Matt’s August Update: Why Long-Term Leadership Matters

August 17, 2020

Long-term vision is a key quality of company leadership.Before making investments, there are several important factors investors need to look for in a company’s leadership. Some qualities, such as integrity, are not just important, they are crucial. The factor I would like to highlight today is the long-term mindset. All too often, executives are focused on the next quarter’s numbers and not their company’s competitive positioning over the next’s founder and CEO Jeff Bezos is justly celebrated for focusing on years and decades rather than months and quarters. In his inaugural shareholder letter in 1997, the year Amazon went public, he shared his vision for the company and its Day 1 mentality. The first section of that letter was titled, “It’s All About the Long Term.

Another company whose leadership is rightly focused on the long term is PayPal Holdings (NASDAQ:PYPL). Since being spun off from parent eBay in 2015, PayPal CEO Dan Schulman and the rest of its leadership team have made decision after decision based on what was best for the company’s long-term prospects, even if it meant forgoing quick and easy profits for the immediate future. Here are two examples that illustrate this well:

  • In early 2016, former Visa CEO Charlie Scharf publicly called out PayPal for not playing nice with the credit card companies, by pushing consumers to use their bank accounts to fund transfers and purchases and not credit cards. Funding from bank accounts was more profitable for PayPal, but the practice wasn’t consumer-friendly, and PayPal realized it could benefit by playing nice with the other players in the payments industry. PayPal soon relented, making choosing different ways for funding much easier for its users. A partnership with Visa soon followed and a similar agreement with Mastercard quickly followed.
  • At the time, some analysts said PayPal was capitulating and essentially surrendering to the credit card networks. But they were missing the bigger picture. PayPal was more concerned about its consumer experience than squeezing its customers for every last dime. A flurry of partnerships soon followed, positioning PayPal as the Switzerland in the payments ecosystem, a completely neutral payments platform that works equally well on every device and operating system and could be used with nearly all financial institutions and merchants.

In PayPal’s 2017 third quarter, the company announced Venmo would soon be rolled out as a payment option for merchants where PayPal was accepted as a method of payment. Immediately management took questions on how this would be monetized, but CFO John Rainey immediately cooled expectations, saying “But we’ve got pretty measured expectations around this, so we don’t want to get too far out in front of ourselves. This is a pretty precious experience, so we want to make sure that we get it right … and we’ve got a multiyear outlook going on what this will be.”

In both these instances, PayPal’s leadership took a long-term mindset over a concern for the next quarter when it came to growing its business. As is so often the case when a company’s shareholder base and company leadership take that outlook, both have been richly rewarded.
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