In the USA, the Wall Street Journal tells us, the Long-Term Stock Exchange plans to petition the Securities and Exchange Commission to eliminate the requirement for companies to issue a quarterly earnings report.
This story took me back twenty five years, to an invitation from the International Investor Relations Federation to talk to their members about the future.
Predictions for 2020
Borrowing from author Thomas Friedman, I predicted the news in September 2020.
‘The main headline again. The US Government has been acquired by Microsoft Corporation for an undisclosed sum.’
I may have been wrong about Microsoft, and it may have taken an extra five years, but for Gates read The Trump Organisation and that prediction begins to look credible.
What of my predictions about the future of investment? My (not very welcome!) argument then was that the role of Investor Relations Officer would have disappeared from companies. Helped by better technology, more accessible data and information, more stakeholder accountability, and better governance, the world of investment would become ever more divided.
I used the metaphor of a tuning fork. One prong represented stewardship, the other trading. On the stewardship side would be a few people who truly understood companies within a sector, understood their business models and capably assessed their leadership and their prospects.
Companies wouldn’t need investor relations specialists – people employed to massage perceptions of the company and give hints about its future earnings. The measurable progress of the company on tangible and intangible criteria would speak for itself.
On the trading side of the fork I foresaw:
‘a system full of huff and puff and spin from people who had …a one dimensional view of risk’
Here I saw the investor relations officer’s skills, and those of the analyst, being reduced to a piece of software. Replace the word software with AI and again that feels credible.
A quarter of a century has passed. Technology may have changed, but the divide remains. On one side are rigorous investors assessing the quality of a company’s leadership and its character and intangible capital, and what Unni Krishnan of Long Wealth would call the 70% zone of value creation.
On the trading side, the ‘earnings game’ continues. Around it has grown a whole industry dedicated to riding the waves of the market. Take this example from Saxo, urging investors to understand the calendar of quarterly earnings statements, and the ‘rhythm of the calendar’. It reads rather like those handy hints a newspaper offers gardeners on when to plant their potatoes.
‘Timing matters because expectations build in advance. Analysts revise forecasts, investors position portfolios, and volatility rises as results near. By the time numbers land, markets are primed for a reaction.
What is the market in equities for?
Markets are good servants but bad masters. Equity markets don’t exist to create a good living for those employed in them. They are there to serve entrepreneurs and the enterprises they create; and to serve savers and the capital they invest. The test should be the financing of enterprises so that they can better create wealth and thereby build a stronger economy which better serves society. Let’s call this a stewardship view of capitalism.
Abolish Quarterly Earnings Statements – or develop a real agenda for change?
Which brings us to 2025 and the call for the abandonment of quarterly earnings statements. This might free up more time for entrepreneurs and managers to concentrate on creating wealth. But let’s not get carried away. Quarterly earnings statements are a symptom, not the cause of company short-termism. If governments want wealth creation to better serve society, here’s my UK agenda. .
- an unashamed commitment to individual entrepreneurship and agility throughout the education system.
- Reinvent our approach to human capital to prepare us for the world of AI. Replace testing-obsessed Victorian knowledge factories with educational approaches that emphasise discovery and unlock creativity and entrepreneurial imagination in its young.
- Make the wellbeing of future generations the first objective of every regulator – just imagine how different an outcome we might have enjoyed from the water industry under such a regime.
- Building on the 2025 Mansion House Accord mobilise the UK’s domestic asset owners, including pension schemes, to collaborate in creating a powerful investment force capable of taking risks and investing in the expansion of our home-grown unicorns like Stephen Critchlow rather than forcing them to sell out to US owners
- Make the City of London a world leader in stewardship, good governance and responsible wealth creation, backing those breakthrough companies which are finding solutions to the next generation’s environmental, housing, energy and community problems.
- Base our country’s industrial strategy on the growth and encouragement of such dynamic home-grown purposeful companies with a long-term focus.
- Deploy the public sector’s purchasing power (approaching £400bn a year in the UK ) to require due diligence around the character and culture of the companies which government selects as partners or suppliers. (Just imagine the difference that could have made to Fujitsu and the Post Office!)
- Prioritise family ownership and employee ownership and community ownership and mutuals and all the hybrid private forms of ownership that allow a founder to pass on a business without becoming a hostage to quarterly earnings statements. Maintain inheritance tax rules that make it possible to pass on your family or private business to the next generation.
- Follow the agenda championed by late Sir David Cooksey on ‘how to turn good science into good business’ through rebalancing the incentives between growth-focused venture capital and the extractive part of private equity.[i]
This is the start of an effective wealth creation manifesto yet to be written. Quarterly earnings reporting might be part of it. But only as a footnote.
Mark Goyder is the Founder of Tomorrow’s Company and Senior Advisor to the Board Intelligence Think Tank. He is the co-author, with Ong Boon Hwee, of Entrusted – Stewardship For Responsible Wealth Creation, published by World Scientific.
[i] Nothing Ventured, Nothing Gained; Turning Good Science into Good Business Sir David Cooksey with Edward Russell-Walling Whitefox Publishing 2024.