Business Roundtable is an association of chief executive officers of leading U.S. companies working to promote a thriving economy and expanded opportunity for all Americans through sound public policy.
Washington – Business Roundtable today announced its support for companies moving away from an expectation of providing quarterly earnings per share guidance and potentially dropping such guidance in the future. Championing long-term value creation for shareholders has always been a central tenet of Business Roundtable. Business Roundtable supports corporate strategies that allocate capital for long-term growth and management of risks, with the goal of producing sustainable value creation. Public companies should be managed for long-term prosperity, not to meet the latest forecast. Such short-termism is unhealthy for America’s public companies and financial markets — which are critical to economic growth and financial prosperity.
Millions of American families depend on public companies for work (U.S. public companies account for one-third of the nation’s private sector jobs), and these same families and many more depend on these companies to improve their financial futures through retirement plans, 401K plans, college savings plans and mutual fund investments.
Providing guidance about quarterly earnings performance can incentivize undue focus on short-term profits, at the expense of long-term strategic investments, ultimately to the detriment of companies and their shareholders. Unlike longer-term performance metrics, quarterly results often reflect factors beyond a company’s control, including political events and even weather.
“The health of U.S. financial markets and our economy depends on well-informed, long-term investments by businesses and shareholders alike,” said Business Roundtable President & CEO Joshua Bolten. “An outsized emphasis on quarterly earnings per share projections undermines the importance of investments in infrastructure, workforce development and other crucial capital expenditures that drive sustained U.S. economic growth.”
Business Roundtable supports providing investors with critical information on the long-term health and strategy of companies. Longer-term targets and goals could include appropriate key performance indicators or other specific metrics that provide a basis for assessment of current and future performance.
“I’ve seen how pressure to produce forecasted results distort business decisions in a myriad of ways,” said Berkshire Hathaway Chairman and CEO Warren Buffett. “Companies, shareholders and, indeed, our country would be better served by focusing on concrete metrics and fundamentals rather than pre-emptive commitments to short-term performance.”
Business Roundtable believes that moving away from quarterly earnings per share guidance will not diminish the information and transparency engaged shareholders require, nor will it render management less accountable. This view is shared by other finance industry leaders.
“America’s current and future retirees deserve to know that their savings are being invested based on reliable metrics and accurate reporting,” said Council of Institutional Investors Executive Director Ken Bertsch. “When companies are managed for the long term, it creates value for shareholders with long investment horizons. Practices that encourage long-term thinking and investment create value for millions of Americans without sacrificing the transparency and accountability that investors deserve.”
Clear communication of a company’s strategic goals — coupled with informative, tailored metrics that can be evaluated over time — will always be critical to shareholders. This information, which may include non-financial operational performance, should be provided on a timeline deemed appropriate for the needs of each specific company and its investors, whether annual or otherwise. Importantly, companies will still of course provide quarterly reporting — the retrospective reporting of actual performance that allows investors to assess concrete progress against strategic goals — and any clarification or update of annual guidance as needed.
Companies should strive to offer realistic projections and avoid making short-term decisions that are inconsistent with their long-term strategies simply to beat short-term performance benchmarks. Sacrificing long-term value to satisfy short-term speculation only works against the interests of U.S. companies, shareholders and ultimately the nation’s entire economy.