Let's slow things down
It’s high time quarterly reporting was abandoned
By Ben Griffiths | Published 12:07, 20 April 12
The euro zone debt crisis, like a crazed zombie from a B-list movie, refuses to die. The perennial problem of excessive pay just keeps on coming. And you can be certain that retailers will complain about the weather every time they issue a statement to the London Stock Exchange.
But one problem that I’ve found particularly vexatious is the current fashion for quarterly reporting among Britain’s blue-chip companies.
I’m reassured to find that it’s not just me who’s troubled by it. Indeed, no less a name than respected economist and commentator John Kay has carried out a review for the government. His findings, published in February, concluded that it was forcing investors and companies to take a short-term view.
What’s new in that, you may ask?
Investors have long been after quick rewards. The example of US processed cheese giant Kraft buying up historic confectionery group Cadbury’s is a good example. Short-term appetite among Cadbury’s investors for a quick return led to the rapid takeover of a British institution.
Now pension funds, insurers, shareholder groups and small retail investors are branding quarterly reporting as “useless or misleading”.
I first argued that very point three years ago when in a quick straw poll of financial market participants I discovered most thought quarterly reporting meant there was simply too much to digest.
On one particular day I counted no less than nine FTSE 100 companies reporting their figures including some of our best known companies: Antofagasta, AstraZeneca, BAE Systems, British American Tobacco, BSkyB, BT, Centrica, Reed Elsevier, Rolls Royce and Royal Dutch Shell.
That’s quite enough for any institutional investor to handle in one go.
At that time my interviews found many analysts whose reporting calendar was so packed they were having trouble producing research notes for their clients on the same day big results were posted. How then could they expect to write timely, relevant research that would interest investors and guide their behaviour?
Predictably, the UK listing rules determine when companies must make their financial results available. And because most businesses work to either the fiscal or calendar year there is bound to be inherent congestion at certain times.
Yet, how are Kay’s recommendations -- that investors take the role of stewards, putting long-term interests to the fore and trying to influence behaviour rather than threatening to pull their investments -- to be implemented without a slowing down of the rush to find value?
Chief executives, CFOs and their fellow board members are far too fixated on meeting investors’ demand for quick wins, Kay found. Instead we should be demanding a slower-moving and, dare I say it, more boring journey to long-term goals, which may not create instant gratification.
The Confederation of British Industry nicely summed up my feelings towards quarterly reporting. The employers’ group described it as “onerous for companies” and “adding little value for investors”.
It’s high time the practice was abandoned.