Signs are emerging that one of the most significant barriers to
investors taking a longer-term interest in a company is beginning to
break down.
Pharmaceutical company Pfizer has become the latest
large business to decide to end quarterly reporting of financial
results on the grounds that it encourages short-termism, damaging the
interests of the company and certain categories of investor.
One
likely consequence is that businesses will have more latitude to take
account of intangibles such as their social and environmental
performance, which can take years to deliver a payback.
Other
corporates, including Citigroup, Coca-Cola, General Motors, Ford, Intel
and Motorola, have taken related action, and the US Chamber of Commerce
has urged chief executives and chief financial officers to consider
following their example, arguing that ‘many companies want to stop’ but
feel compelled by the markets to continue.
There are signs,
too, that financial analysts and investors are becoming less enamoured
of short-term reporting. Merrill Lynch recently stated that its
analysts will pay less attention to quarterly reports and more to
longer-term forecasts.
Candace Browning, head of global
securities research and economics at the investment bank said: ‘Merrill
Lynch believes it would be in the best interests of investors if
companies dropped quarterly earnings guidance. Market participants need
to see it for what it is – a rough assessment of one indicator of a
company’s wellbeing.’
Last month Sir Graeme Davis, chairman of
the UK’s second biggest pension fund, the Universities Superannuation
Scheme, called on institutional investors to put more emphasis on
long-term investment and encouraged them to join the Marathon Club, an
investor network dedicated to ending short-termism. Among those
critical of quarterly reporting is former BT chairman Sir Iain Vallance
(EP4, issue 2, p7).
Short-term
reporting is now also attracting politicians’ attention. The US House
of Representatives’ financial services committee is to hold a hearing
that will touch on the subject.
