Published on: June 14, 2018
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Hi, Kevin Coupe here and this is FaceTime with the Content Guy.
One of the complaints often made about a certain e-commerce company is that it has an unfair advantage because Wall Street holds it to a different standard than other companies. Most companies show even slightly smaller than expected revenue or profits, or, heaven help us, an actual decline - regardless of the reasons - and management gets roasted, the stock price drops, and we’ve got corporate Armageddon.
It doesn’t matter, say, if a company’s strategy hinges on customer service … if an investment in staffing and training and benefits, all designed to support the long-term goals and company narrative, hurts the short-term bottom line, there inevitably will be weeping and the gnashing of teeth.
That strikes me as very short term thinking. it is, of course, the kind of thinking upon which many CEOs are judged and compensated.
So, when one particular company manages to avoid that trap by building long-term thinking into its culture, infrastructure and goals … well, that’s tough for companies that haven’t done the same.
This made it interesting to me the other day when the WSJ had story about how James Dimon, chairman/CEO of JPMorgan Chase , and Warren Buffett, chairman of Berkshire Hathaway, are making the argument that public companies ought to “consider ending the practice of providing quarterly earnings guidance, arguing that it encourages an ‘unhealthy focus’ on short-term profits at the expense of long-term growth and economic strength.”
They say that a traditional quarterly focus often is “at the expense of long-term strategy, growth and sustainability.”
They’re not arguing that quarterly reports should not be issued - in fact, they say that they are “an essential aspect of U.S. public markets.” But, they says, communications with shareholders ought to be tailored to the needs and strategic goals of individual companies, not based on a template established by the investor class.
The Journal writes that Buffett and Dimon “are the latest in a long line of executives and corporate-governance advocates to voice qualms about quarterly earnings guidance. Not only does it encourage short-term thinking, critics say, but it also enables companies to skew the market’s perception, by setting guidance artificially low and then ‘beating expectations’.”
“Advocates of providing guidance say it gives investors important information and cuts down on surprises and volatility in the market,” the Journal writes. Maybe. But I’d argue that it also inhibits a lot of companies and corporate leaders from actually achieving their potential, which you’d think would be a good thing for investors.
Maybe everybody ought to take a lesson from a different Buffett - Jimmy - who sings that the secret to life is to “breathe in, breathe out, move on.”
That may not seem like the best recipe for short-term investing. But it might be an approach that will nurture greater long-term prosperity .. for companies, shareholders, and employees. Because, in fact, what Dimon and Buffet really are espousing is a stakeholder-centric approach to company management and investing.
That’s what’s on my ming this morning. As always, I want to hear what is on your mind.
- KC's View: