A curious feature of the past three years has been the intertwined controversies over earnings guidance, corporate “short-termism” and the quarterly disclosure system. The discussion has been illuminating, and, while further regulatory attention now seems unlikely, the perils of neglecting the long-term will likely continue to color how analysts, regulators and investors view public companies and their disclosures.
Back in 2018, prominent voices were heard lamenting the short-term focus of public company management, arguing that earnings guidance creates a vicious cycle in which public company strategy focuses on short-term earnings targets rather than long-term, sustainable growth. Among these, Jamie Dimon, Warren Buffet and the Business Roundtable called for public companies to reconsider the practice of quarterly EPS guidance, with its “unhealthy” consequences for long-term growth.
Around the same time, discontent over the SEC’s quarterly disclosure regime also started to make headlines. Inspired by a conversation with former PepsiCo CEO Indra Nooyi, President Trump surprisingly expressed (on Twitter) an interest in quarterly disclosure practices and asked the SEC to look into shifting from a quarterly to a semi-annual disclosure regime.