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Governance

Business Roundtable advocates companies abandon short-term profits for long-term investments

Billionaire investor Warren Buffett

Warren Buffett says everyone would be better served by focusing on fundamentals than short-term performance

The Business Roundtable is advocating that publicly traded companies abandon strategies that emphasize short-term profits in favor of strategies that allocate capital for long-term growth.

The Washington-based group of blue-chip company CEOs, chaired by J.P. Morgan Chase & Co. CEO Jamie Dimon, issued a news release Thursday saying companies "should be managed for long-term prosperity, not to meet the latest forecast." The group noted that companies need to offer realistic quarterly projections and avoid making short-term decisions inconsistent with long-term strategies simply to beat short-term performance benchmarks.

The reason for this is that this kind of short-term thinking "is unhealthy for America's public companies and financial markets," and that providing guidance on quarterly earnings performance can provide incentives for "short-term profits, at the expense of long-term strategic investments."

The Business Roundtable also noted that "millions of American families … depend on these companies to improve their financial futures through retirement plans, 401(k) plans … and mutual fund investments."

"The health of U.S. financial markets and our economy depends on well-informed, long-term investments by businesses and shareholders alike," said Joshua Bolten, Business Roundtable president and CEO, in the release. "An outsized emphasis on quarterly earnings per share projections undermines the importance of investments in infrastructure, workforce development and other crucial capital expenditures that drive sustained U.S. economic growth."

Berkshire Hathaway Chairman and CEO Warren Buffett also said in the release, "Companies, shareholders and, indeed, our country would be better served by focusing on concrete metrics and fundamentals rather than pre-emptive commitments to short-term performance."

BlackRock (BLK) Chairman and CEO Laurence D. Fink has previously advocated for money managers to abandon short-termism in favor of focusing on long-term value creation.