Calls for companies to invest more in long-term value creation and pay less attention to quarterly financial results may be falling on deaf ears, but it’s not because shareholders don’t want that change in focus, research released today suggests.
Indeed, while CFOs (and companies generally) often cite maximizing shareholder value as their chief duty, and a long-term strategic view clearly behooves that objective, in practice a short-term mindset prevails. And with good reason: missing quarterly forecasts doesn’t exactly promote job security for CEOs and finance chiefs or help them win big bonuses.
That’s too bad. Among 150 buy-side analysts and portfolio managers surveyed by Edelman’s financial communications practice, the vast majority placed a high degree of value on getting from companies certain types of information that could allow more informed long-term investment decisions.
For example, 91% of the respondents said it was either very or somewhat important to get information about anticipated future opportunities and vulnerabilities, such as product-release pipelines and new contracts. Management’s vision for the company was important to 87% of the participants, and future capital-expenditures expectations were important to 84% of them.
Tellingly, 89% of those surveyed agreed with the statement, “If a company is able to articulate a long-term strategy that meets my investment thesis, I am willing to look past one or two quarters of misses.”
“It’s not easy to come up with tangible tactics that encourage companies to think on a long-term basis and not just the next quarter or two,” says Lex Suvanto, managing director of the financial communications team at Edelman. “But here we have data points suggesting that investors care less about quarterly results than about a compelling and sensible investment story.”
Additionally, although CEOs and CFOs routinely spend the majority of time during earnings calls reciting numbers from their financials, analysts and portfolio managers are more interested in qualitative information. Qualitative guidance about trends in revenues, earnings, margins, and other financial metrics was deemed important by 88% of the survey respondents.
Meanwhile, only 41% of them agreed with the statement, “A company has to give me quantitative guidance for me to consider the investment,” whereas 87% agreed with, “I find little value in a CFO reciting the income statement and would prefer a more high-level discussion of what took place during the quarter.” And 81% agreed with, “On quarterly earnings calls, I would prefer that management give their highlights for the quarter and reserve the bulk of the time for Q&A.”
The survey results “should help management teams identify what they should focus on in communications with investors,” says Suvanto. “The truth is that for earnings calls, they often start with a template from the prior quarter and go through an exercise of filling in the blanks. What if they didn’t do that? Perhaps the reason investors are more interested in the Q&A is that the script is not that interesting.”
One more thing to note from the research: if an investor calls to talk, take the call. Ninety-two percent of respondents said “company responsiveness to inquiries” was important to them in evaluating a company’s investor relations program. The same number said “phone conversations with senior company management” were a reliable source of information.
Photo: Carlos Delgado, downloaded from Wikipedia, CC BY-SA 3.0.