Coverage: Buffett, Dimon call for end to quarterly earnings guidance
Billionaire investor Warren Buffett and JP Morgan Chase CEO Jamie Dimon came out Thursday against companies providing quarterly earnings guidance to Wall Street, saying its short-term focus hurts the economy.
Liz Moyer of CNBC.com had the news:
Dimon, the chairman of the Business Roundtable, said the group of CEOs has thrown its support behind companies backing away from the practice.
Executives often feel pressure to make quarterly forecasts, but “it 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 in a rare joint interview with Buffett airing Thursday on CNBC’s Squawk Box.
“Quarterly earnings: they’re a function of the weather, commodity prices, volumes, competitor pricing. And you don’t really control that as CEO,” he added. “Sometimes you’re just like the cork in the ocean, but do the right thing anyway and you’re going to be fine in the long run.”
“You should build the systems you need, you should do the R&D that you need and explain it to your shareholders and your board. Of course, some of the CEOs will say it’s the sell side, that we put pressure, but what I’m trying to say to people: be free to drop it.”
Linette Lopez of Business Insider wrote that their approach is wrong:
So let’s talk about solving this very real problem with short-term thinking another way — a way that makes more sense for shareholders interested in transparency and good corporate governance.
Instead of eliminating transparency, how about we reward CEOs for thinking long term? How about we teach people in business school that corporations are not just shareholders, but also employees and customers and communities? How about we change their payment packages to incentivize longer-term thinking?
How about we expect CEOs to act like stewards instead of treating them like infants with no self control?
Buffett and Dimon want to take away temptation, but what they’re proposing does nothing to solve our real, deep rooted problem with short-termism. That goes back to how CEOs are trained to think of companies from business school til the end of their careers — it has to do with who they think matters, and who they don’t think about at all.
Stephen Gandel of Bloomberg Opinion writes that the idea would hurt the markets:
The reason investors are so focused on quarterly forecasts and whether companies meet them is because they have lost all control elsewhere. More and more companies continue to list with dual-class shares that give public shareholders little or no voting rights. Boards have not been an effective check on corporate behavior or executive pay. Shareholder proxy votes are still only advisory and little respected anyway. Dimon recently called annual shareholder meetings a waste of time and proposed canceling them entirely. Dimon and Buffett are both the CEO and chairman of their respective companies, JPMorgan Chase & Co. and Berkshire Hathaway Inc. And neither Dimon nor Buffett have given a clear picture of who would succeed them when they leave.
If companies are not willing to adhere to the good corporate governance principles that make shareholders comfortable that they have a say in the long-term direction of their company and that boards and executives will be good long-term stewards of their investment, then investors become hyperfocused on whether companies are performing in the short term and punish companies when they don’t.