The quarterly syndrome cramps vision

“If we have a good quarters it’s because of work we did 3, 4, 5 years ago. It’s not because we did a good job this quarter,” says Jeff Bezos. This prophetic remark from the Amazon founder is a reminder every time I read about institutions declaring quarter-on-quarter results and how the achievements in the quarter are showing signs of growth and stability for the company.

The pre-listing euphoria does not necessarily follow the post-listing number devouring that happens quarter on quarter. Read through the analysts’ transcripts after every result to see more questions revolving around the plan for the next quarter or the remainder of the year at best. Not surprising then, why Kodak and Nokia were caught in the web of quarterly capitalism and missing the undercurrent of a paradigm shift in their respective territories.

The genesis for this myopic focus stems from quarterly financial reporting as the trigger for this short-term focused topic of quarterly capitalism. In 1950s US, the Securities and Exchange Commission mandated the reporting of a semi-annual income statement; this was changed to a quarterly statement in the 1960s. During the 1970s, quarterly reporting was required for the full set of financial statements in the US. Canada followed the quarterly reporting practice in the 1970s with many others following them by 2000.

The typical arguments for quarterly reporting are the timeliness of information so that equity price better reflects the value of the firm, and the enhancement of accountability and corporate governance. However, in the process, most company managements are caught in the web of quarterly capitalism leading to a myopic vision cascading all the way to operations or sales.

Every decision involving geographical expansion, developing a product for the future, inorganic growth, offshoring agreements and investing in talent are impacted by quarterly capitalism. The pressure on the focus of share price based on quarterly performances broadly impacts the vision of the organisation. This cascades to the middle management where every decision is influenced by the yearly dollar revenue/savings that overlooks the other longer term benefits.

The web throws up two instances. One, a study by Asker, Farre-Mensa and Ljyungqvist has confirmed that publicly quoted companies with share prices to worry about tended to invest ‘substantially less’ than privately-owned non-quoted companies. And two, there is the Forbes research where Unilever’s CEO, Paul Polman, spearheaded the 10-year Unilever Sustainable Living Plan, which seeks to decouple the company’s growth from its environmental footprint. The ambitious goals include doubling Unilever’s revenue while slashing the footprint by 50%; sourcing 100% of its raw materials sustainably; and helping more than a billion people improve their health and well-being.

In the technology world, Steve Jobs was against a dividend payout and share buyback programme that may have largely helped Apple reinvest in new ideas and products during his tenure. Jobs was ousted from Apple and had to sell NeXT in part because as a young entrepreneur he paid insufficient attention to the bottom line. When he returned to Apple in 1997 the company was, according to him, three months from bankruptcy. From then on he treated Apple’s growing cash hoard like a starvation survivor treats food in the larder — something that could disappear at any time.

“We know if we need to acquire something — a piece of the puzzle to make something big and bold — we can write a check for it and not borrow a lot of money and put our whole company at risk,” Jobs said to a shareholder who asked him why Apple didn’t pay dividends.

While Tim Cook may have kept shareholders happy with his generous dividend policy and share buyback programme, there is an equal counter-enthusiasm wave that points to a lack of innovation post the Jobs era in this tech major.

The Suez Canal, the Brooklyn Bridge in New York, Rotterdam Port, Victoria Terminus in Mumbai and many more such infrastructure networks were built by governments not focusing on quarter on quarter growth. Compare this to modern airports and highways that start choking within a few years of construction.

In the corporate world, Disney, Apple, Tata’s and many other banking and engineering giants were built by visionaries who looked beyond QoQ growth, and are a testimony to their near-century existence. Compare this to the modern unicorns who start a company with the intention of selling it big in 3 or 4 years.

Quarterly capitalism is not just financials; it’s more to do with the vision that impacts the DNA of an organisation. We need more change leaders. Ninety days in the life of an organisation is not even a blip on the horizon of time. Think beyond a quarter to leave a legacy.

The writer works in a Singapore-based bank. The views are personal

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