WALL STREET JOURNAL.
Short-Termism Is Harming the Economy
should reduce or eliminate the practice of estimating quarterly
By Jamie Dimon and Warren E. Buffett
June 6, 2018 10:00 p.m. ET
Every generation of Americans has a
responsibility to leave behind a stronger, more prosperous society than the one
it found. The nation’s greatest achievements have always derived from long-term
investments. In both national policy and business, effective long-term strategy
drives economic growth and job creation.
For public companies, these same principles are true. That’s why
today, together with Business Roundtable, an association of nearly 200 chief
executive officers from major U.S. companies, we are encouraging all public
companies to consider moving away from providing quarterly earnings-per-share
guidance. In our experience, quarterly earnings guidance often leads to an
unhealthy focus on short-term profits at the expense of long-term strategy,
growth and sustainability.
Photo: istock/getty images
Because well-managed and well-governed businesses are the engine
of the U.S. economy, good corporate governance is imperative. Though publicly
owned companies account for only about 4,300 of America’s 28 million businesses,
they are responsible for a third of all private-sector employment and half of
all business capital spending. America’s public companies drive job creation,
opportunity and economic growth.
This announcement today builds on the
Governance Principles that business leaders developed in 2016. These
principles acknowledge that the financial markets have become too focused on the
short term. Quarterly earnings-per-share guidance is a major driver of this
trend and contributes to a shift away from long-term investments. Companies
frequently hold back on technology spending, hiring, and research and
development to meet quarterly earnings forecasts that may be affected by factors
outside the company’s control, such as commodity-price fluctuations,
stock-market volatility and even the weather.
The pressure to meet short-term earnings estimates has
contributed to the decline in the number of public companies in America over the
past two decades. Short-term-oriented capital markets have discouraged companies
with a longer term view from going public at all, depriving the economy of
innovation and opportunity. Fewer public companies has also meant fewer
opportunities for retail investors to create wealth through their 401ks and
individual retirement accounts.
Even as the overall number of public companies declines, more
than 100 million Americans invest in them directly or through mutual funds.
Millions more do so through their participation in corporate, public and union
pension plans. Many of these people are veterans, retirees, teachers, nurses,
firefighters, and city, state and federal workers. Public companies owe it to
all of them to get this right.
Our views on quarterly earnings forecasts should not be
misconstrued as opposition to quarterly and annual reporting. Transparency about
financial and operating results is an essential aspect of U.S. public markets,
and we support being open with shareholders about actual financial and
operational metrics. U.S. public companies will continue to provide annual and
quarterly reporting that offers a retrospective look at actual performance so
that the public, including shareholders and other stakeholders, can reliably
assess real progress.
Clear communication of a company’s strategic goals—along with
metrics that can be evaluated over time—will always be critical to shareholders.
But this information, which may include nonfinancial operational performance,
should be provided on a timeline deemed appropriate for the needs of each
specific company and its investors, whether annual or otherwise.
Ken Bertsch, executive director of the Council of Institutional
Investors, the leading voice for strong shareholder rights, supports this
premise: “America’s current and future retirees deserve to know that their
savings are being invested based on reliable metrics and accurate reporting.
Practices that encourage long-term thinking and investment create value for
millions of Americans without sacrificing the transparency and accountability
that investors deserve.”
Reducing or even eliminating quarterly earnings guidance won’t,
by itself, eliminate all short-term performance pressures that U.S. public
companies currently face, but it would be a step in the right direction.
Anything America—and America’s public markets—can do to focus on the future and
build long-term wealth and opportunity will make the country stronger, more
resilient and more competitive. Over the long run this will strengthen the U.S.
economy, benefit America’s workers, shareholders and investors, and leave a
generational legacy we can be proud of.
Mr. Dimon is chairman and CEO of JPMorgan Chase & Co. and
chairman of Business Roundtable. Mr. Buffett is chairman of Berkshire Hathaway
Appeared in the June 7, 2018,