BlackRock Chief Urges
Companies to End Quarterly Profit Guidance
February 2, 2016 — 9:56 AM EST
encourages executives to provide strategic framework
Dimon, Buffett held meetings about long-term investing
Laurence D. Fink, who runs the world’s
largest asset manager, urged the chief executive officers of leading
companies to stop offering quarterly earnings guidance and increase
their focus on long-term goals.
"Today’s culture of quarterly earnings
hysteria is totally contrary to the long-term approach we need," Fink,
the CEO of BlackRock Inc., wrote in a letter to more than 500
companies, a copy of which was obtained by Bloomberg News. Instead of
focusing on small deviations from analysts’ earnings estimates,
management should use quarterly reports to demonstrate progress
against strategic plans, he wrote.
Fink asked the CEOs to provide each year
a strategic framework, reviewed by the board of directors, for
long-term value creation, which would include financial metrics. The
framework could address how a company, for example, is adapting to
technological disruption and geopolitical events, according to the
letter, which was reported earlier by the New York Times.
Fink has been critical for years of the
short-term approach taken by companies as stock buybacks and dividends
reach record levels. He and other top investors, including Berkshire
Hathaway Inc.’s Warren Buffett and JPMorgan Chase & Co.’s Jamie Dimon,
have held meetings since August to discuss longer-term investment by
public companies, with topics ranging from executive pay to board
tenure to the role of board directors, according to a person familiar
with the matter.
The most recent gathering was in
December, said the person, who asked not to be identified because the
discussions were private. The Financial Times first reported on those
Buffett didn’t immediately respond to a
request for comment sent to an assistant. Andrew Gray, a JPMorgan
Chase spokesman, declined to comment.
which oversees $4.6 trillion for clients, is the biggest shareholder
in many of the largest U.S. companies, including JPMorgan Chase and
Citigroup, according to data compiled by Bloomberg.
Dividends paid by companies in the
Standard & Poor’s 500 Index of U.S. stocks last year hit the highest
proportion of their earnings since 2009, Fink wrote. Buybacks were up
27 percent over 12 months at the end of the third quarter.
Fink has also been critical of activist
investors in some instances. He said in the letter that companies
usually do better when ideas for value creation aren’t forced upon
them in a proxy fight.
In some cases, however, activists do
offer better strategies than management, he wrote. BlackRock last year
voted with activists 39 percent of the time in the 18 largest proxy
©2016 Bloomberg L.P.