Long Term Thinking Means Ending Short-Term Reports
The chorus to end quarterly corporate reporting recently gained two prominent voices from the financial world. In a recent article in Bloomberg, Jamie Dimon, CEO of JP Morgan Chase, and Warren Buffett, the Chairman of Berkshire-Hathaway, advised companies to do away with their emphasis on quarterly earnings reports, arguing that it motivates misconduct and shifts the focus from sustained growth and stability to immediate profits and performance.
From the piece:
“Quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability,” they said.
They have said the practice of telling Wall Street what to expect from earnings can distort management’s priorities. In the latest appeal, they said companies often hesitate to spend on technology, hiring, and research and development to meet quarterly earnings forecasts that can be affected by seasonal factors beyond their control.
Earnings forecasts “can often put a company in a position where management, from the CEO down, feels obligated to deliver earnings and therefore may do things that they wouldn’t otherwise have done,” Dimon said Thursday in an interview with CNBC. “We’re hoping a bunch of companies drop it right away.”
Their advice gels with the advice contained in a letter to fellow corporate leaders by Blackrock CEO Larry Fink in 2016. More so, their counsel is echoed by research and organizations like The Aspen Institute who are looking to make this pivot in thinking more widespread.
For businesses to truly succeed and build sustainable value, they have to look towards the horizon. Since a company is only as strong as its culture and employees, a new mindset that focuses on long term thinking is the best way to obviate issues that can hobble even the most nimble- and profitable- organization.
A Long Term Fix for Our Short Term Focus on Corporate Culture and Profits [ES blog]
Airlines and Stakeholders: A First Class Relationship [ES blog]
Ethics Pays [Research page]