6/7/18: Buffett and JPMorgan's Dimon
Want to Ditch Quarterly Earnings Estimates
Is it a good thing for investors and companies?
By Eve Tahmincioglu
Is the practice of corporations filing
quarterly earnings estimates stifling innovation?
Berkshire Hathaway Chairman Warren
Buffett and JPMorgan CEO and Chairman Jaime Dimon are lobbying to have
Corporate America ditch earnings estimates now done quarterly.
an OpEd in the
Wall Street Journal Thursday, the two executives
“...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.”
The issue of short-termism has been plaguing corporations as
executives have focused on short-term gains in lieu of long-term
value. That has hampered innovations in products and services, many
argue, including Buffett and Dimon.
The former CEO of DuPont told
Directors & Boards that
he doubted Kevlar — DuPont’s lightweight, super-strong fiber used in
body armor that has saved thousands of lives — would have come to
market in today’s short-term business climate.
But will doing away with filing
quarterly estimates make company executives change their approach? Is
it good or bad for investors? And is
less frequent disclosure the answer?
• Gary Lutin, chairman of
The Shareholder Forum,
Buffett and Dimon — along with others
including institutional investor BlackRock CEO Larry Fink — are
pushing only for the elimination of quarterly ‘guidance,’ basically
forecasting, he explains. Although others, particularly in European
markets, are pressing for the elimination of all quarterly reporting.
“My observation of ‘sound’ corporate
management, defining that as focused on the long-term production of
competitively successful goods and services, is that monitoring of
short-term performance — even monthly or weekly — is often important,
and even essential. When done properly, the short-term data is viewed
for the purpose of measuring progress toward a long-term performance
“It’s like monitoring a construction
project, and watching how many stories are added each week. You need
to do that to make sure the progress is on schedule.” But the weekly
information on the number of stories you’ve climbed to, he adds,
“isn’t your performance objective.”
Gleason, CEO and President of the National Association of
Corporate Directors (NACD), weighs in:
“NACD, representing more than 19,000
corporate board members, applauds the CEOs of the Business Roundtable
for embracing the move away from quarterly earnings reporting.
"Beginning with the 2015
Report of the NACD
Blue Ribbon Commission: The Board and Long-Term Value Creation,
our organization has long called for moving away from quarterly
reporting because doing so can foster a culture of focusing only on
short-term results, versus the long-term value creation that corporate
boards and management should be focused on. This challenge is
NACD's 2017 survey of more than 500 public company boards. The
survey results revealed that short-term performance pressure continues
to be acutely felt by boards and management teams, with nearly
three-quarters (74%) of respondents reporting that management's focus
on long-term strategic goals has been compromised by pressure to
deliver short-term results.
"NACD joins the Business Roundtable in
supporting companies' efforts to move away from this practice and
instead devote their attention to the long-term growth of their
companies and the economy as a whole.”
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