Want to end corporate short-termism and all the heavy breathing that comes with quarterly earnings reporting? Then report results daily.
The excessive focus on stock price — and stock-option bonuses and compensation in the executive suite — is thought of as a driver of share buybacks and decreased capital spending, especially in research and development.
Recently, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and Berkshire Hathaway Inc. CEO Warren Buffett called on companies to move away from “providing quarterly earnings-per-share guidance. In our experience, quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability.”
President Donald Trump went even further: he asked financial regulators to “consider allowing public companies to share information with investors less often.” Trump directed the Securities and Exchange Commission to study the idea of moving reporting requirements from quarterly to twice a year.
This is exactly backward: more frequent reporting makes the data less significant. In the real world, human behavior emphasizes what occurs less often — meaning doing something less frequently gives it an even greater significance than something that becomes routine or common.
That is the difference between a New Year’s Eve celebration and a married couple’s weekly date night.
Twice a year earnings reporting will make the event so momentous, with such focus on it that any company that misses analysts’ forecast will find their stock price shellacked. The twice-yearly focus on making the per-share number will become overwhelmingly intense.
This is counterproductive.
My proposal: report earnings monthly, with the goal of eventually moving to a near real-time, daily, fundamental update. Technology is improving to the point where business intelligence software and big data analyses will make this automated. Indeed, some companies already do much of this internally.