OPINION: Long termism and quarterly reports fit well together
An early indication of not only progress, but also difficulties in realising strategic objectives, will contribute to a climate of understanding and trust between listed companies and long-term investors
Since January 1, 2016 listed companies are no longer required by law to publish quarterly financial figures. According to legislators, quarterly figures might put too much focus on the short term. Of the 50 largest Dutch listed companies so far only Aalberts Industries and Wereldhave have made use of the option offered by the new legislation. The size of Q1 2016 reports for these companies varied from one page at Sligro Food Group up to 73 pages at ABN AMRO, where the State is still the majority shareholder. Does this result indicate that Dutch listed companies are indeed focused on the short term - or do Dutch listed companies believe that it is beneficial to inform the capital markets about the financial situation at regular, fixed intervals? I believe the latter is closer to the truth.
The Dutch Corporate Governance Code Monitoring Committee recently proposed that all listed companies should, in their annual reports, give a substantive description of their view on long-term value creation and the strategy for its realisation. An investor with a long-term horizon has an appetite for long-term commitment with a listed company. A condition is, however, that the company in question gives a fair view of the feasibility of its strategy, the business model, the competitive landscape and the opportunities and risks for the company. An investor with a long-term horizon would then like to know how the company’s results develop in comparison with the strategy defined.
BlackRock’s CEO Larry Fink recently described quarterly reports as a useful "electrocardiogram" (ECG) for companies. The quarterly reports provide investors with information on how companies are performing against the ‘baseline ECG’ of their long-term plan for value creation.
I agree whole-heartedly with this view. The strategy of a company is carried out with capital from investors and the labour of employees. In an era when the world is changing rapidly, it is not surprising that these stakeholders would like to be informed on a regular basis of the results of the current strategic direction and the possible need for adjustments.
However, it would be good if the emphasis in quarterly reports is placed upon progress in strategy execution, material changes in long-term relevant issues such as competitiveness, market trends and market position, and strategic risks. An early indication of not only progress, but also difficulties in realising strategic objectives, will contribute to a climate of understanding and trust between listed companies and long-term investors.