All shareholders obviously want better shareholder values. While some decry the cult of shareholder value, of course most are hoping for that.
Warren Buffet, the legendary investor, ignored this plea, contending that investors should realize that the focus should be on the long run, where investors will then make money on judicious investments.
It is not surprising that some company executives have stopped publishing full financial results on an interim basis or even any clues to the future.
Unilever’s CEO insists that instead a “sustainable living plan” be published to satisfy long-term investors, which will be focus on emerging markets. Hedge funds managers have made scathing remarks, stating that enthusiasm for shareholder values over the near term “undermines American capitalism.”
It has been noted that interest over the near term in shareholder value has had perverse effects. It has led to some managers manipulating share prices.
If the manager has options to purchase shares in the company, unwise risks may be taken to push up share prices, even though the long-term effects could be counter-productive.
The interest in the near term has led to a drastic decline in the time investors hold stocks. The average time in 1960 was eight years, but now it has been reduced to four months. For all those short-term traders who sit in front of a computer screen, some positions are held for a few seconds.
Managers very well may cut back on advertising expenses or outlays for research and development, helping short-term reports, but bad policy over the long-term period.
Other observers refute these criticisms of short-term results, claiming that longer-term performance after all is made up of many short-term reports. Yet, interim statements may be a good indication of what will be accomplished eventually. Too, it is evident the people who focus on the near term by questionable tactics sooner or later are caught.
Nowadays an increasing number of companies refuse to provide short-term guidance of any kind on the outlook.
IBM has published a “2012 roadmap” to convince investors that plans are underway that will bring beneficial results. Other companies insist managers retire. Two companies offer shareholders a bonus for holding shares for a certain (long) period.
Clearly, the best way to end the fixation on “short-termism” is to provide good long-term results.