The billionaire investor Warren Buffett and JPMorgan Chase's CEO, Jamie Dimon, have voiced concerns that the financial markets' focus on short-term goals is hurting the economy and urged companies to move away from providing quarterly earnings guidance.
But Buffett says the practice of CEOs providing a heads-up on how earnings-per-share results are shaping up often causes them to make poor decisions to ensure that the company beats or meets the results they've communicated to Wall Street.
Dimon is the chairman of the Business Roundtable, an association of CEOs of America's leading companies working to promote a thriving US economy.More news: Dillian Whyte gets huge fight in London next month
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So they should stop the forecasting, the two men said.
"When companies get where they're sort of living by so-called making the numbers, they do a lot of things that really are counter to the long-term interests of the business", he said. They have said the practice of telling Wall Street what to expect from earnings can distort management's priorities.
Companies often hold back spending on technology, hiring, and research and development to meet quarterly earnings guidance that may be affected by factors outside the company's control, the business leaders wrote. Around that time, big companies like Coca Cola, UPS and AT&T said they would no longer give quarterly guidance. They offered "common-sense" recommendations for public companies to improve governance and relations with shareholders. The two business gurus said quarterly financial guidance encourages short-term thinking that stifles growth and limits innovation in the economy. "Let's not forget how we got here: Reg FD was meant to end selective disclosure, the private guidance on future results", Santoli said.
Dimon said that Schultz "would be a great chief executive or governor or senator or mayor or whatever he wants to do", but added that he's not sure that managing a business makes a person suitable for politics.