Dimon, Buffet go long on short-term guidance - Activate World

Dimon, Buffet go long on short-term guidance

Storyline:

Jamie Dimon, chairman and CEO of JPMorgan Chase & Co, and Warren Buffett, chairman of Berkshire Hathaway Inc., wrote an editorial in the Wall Street Journal urging that public companies stop providing quarterly guidance. Quarterly guidance delivers to shareholders an expectation on earnings for the next quarter. Dimon and Buffet argue that this leads to “short-termism.” Short-termism prevents business leaders from making the necessary investments and plans for the long-term. Eventually, short-term focus can ruin a business strategy and competitive edge.

While they argue halting short-term guidance, they believe that is still acceptable to issue quarterly earnings reports. The difference in guidance versus reporting is transparency. Quarterly reporting offers shareholder transparency into how the company is performing. However, some argue that the only way to end short-termism is to stop both quarterly guidance and reporting. The needed shift is to report semi-annually.

The United Kingdom (U.K.) did just that in 2014, eliminating quarterly reporting. However, due to many U.K. companies being listed in the United States financial markets too, they must report quarterly anyway. Over 90 percent of U.K. public companies still report quarterly performance.

Noteworthy:dimon buffet long-term

  • Dimon and Buffet have teamed on another initiative – forming a company to fix healthcare in America. The third partner in the fix-healthcare mix is Jeff Bezos, CEO of Amazon. Bezos did not participate in the call to end quarterly guidance.
  • Transparency is essential in the business world, but maximizing shareholder value as a corporate mantra has led to short-term decisions and performance over long-term strategic growth and leadership. Maximizing shareholder value, more than short-termism, has led to massive layoffs, quick-fix strategic decisions, and dishonest financial practices.
  • Robert Reich, former U.S. Labor Secretary, would likely call the end short-termism just a “symbolic action.” Moving back to a business stewardship approach and eliminating an intense focus on maximizing shareholder value is what will bring better business leadership and decision-making.

Activators Quest & Actions (Q&A):

  • Would business leaders be more effective if performance was reported on a semi-annual timeline instead of a quarterly one? Why or why not? What leadership behavior changes would you observe?
  • How would corporate organizational culture change if performance was reported semi-annually? Be specific in what changes you would expect.
  • What mindset makes a better leader – short-term or long-term?

 

Sources:  MarketWatch, Wall Street Journal, Commonsense Corporate Governance Principles, Fast Company
Photo by Benjamin Child on Unsplash