Dimon, Buffett called out companies to end quarterly earnings guidance .
7 June 2018: Warren Buffett and Jamie Dimon are folding on their plea for corporations to stop providing quarterly earnings guidance. Buffett, who runs Berkshire Hathaway Inc., and Dimon, JPMorgan Chase & Co.’s chief administrative officer, said in a joint Wall Street Journal editorial that they are promoting all public companies to consider running away from the practice, arguing that it can choke long-term investments. “Quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth, and sustainability,” they said.
The two men are among the financial industry’s most powerful leaders. They have said the practice of saying Wall Street what to expect from earnings can distort management’s priorities. In the latest appeal, they said companies often hesitate to spend on technology, hiring, and research and development to meet quarterly earnings forecasts that can be influenced by seasonal factors beyond their control. Dimon has blasted excessive reporting requirements and the short-term focus of quarterly earnings.
At JPMorgan’s investor day in February, he ordered companies to stop providing the guidance, saying earnings are hard to predict and companies have an incentive to fudge numbers. Buffett has echoed the idea that guidance can lead to corporate misbehavior. In the op-ed, Dimon and Buffett said the pressure to meet short-term earnings estimates has contributed to a drop in the number of public companies in the US in the past two decades. “Short-term-oriented capital markets have discouraged companies with a longer-term view from going public at all, depriving the economy of innovation and opportunity,” they said.
Dimon, Buffett and BlackRock Inc.’s Laurence D. Fink urged companies in 2016 to abstain from short-term earnings predicted in a letter and report with other financial industry executives. They offered “common-sense” recommendations for public companies to improve governance and relations with shareholders. Earnings guidance can lead management teams to under-invest in the future and can crimp earnings growth, according to a 2017 FCLTGlobal report. Bloomberg LP, the parent of Bloomberg News, is a member of the Boston-based non-profit group.