Asset manager urges boards of FTSE 350 companies to focus on long-term thinking
Legal & General Investment Management (LGIM), one of the largest asset managers in the UK, has called on companies operating in long-term business cycles to consider stopping quarterly reporting because it distracts from planning for long-term business growth.
LGIM’s CEO Mark Zinkula has written a letter to the boards of FTSE 350 members saying that an end to quarterly reporting could reduce time lost on reporting ‘that adds little value’. It would also lead to better communication and boost long-term value for shareholders as well as ‘more articulation of business strategies, market dynamics and innovation drivers,’ he says.
‘Reporting that focuses on short-term performance is not necessarily conducive to building a sustainable business as it may steer management to focus more on short-term goals and away from future business drivers,’ Zinkula writes. ‘Providing the market with quarterly updates adds little value for companies operating in long-term business cycles. Industries with shorter market cycles and companies in a highly competitive global market environment may choose to report more than twice a year.’
The comments come seven months after the UK’s Financial Conduct Authority scrapped requirements for quarterly reporting in a measure meant to encourage long-term thinking in public companies – with quarterly reporting also becoming optional across the EU by the end of 2015. A UK government-commissioned report authored by the London School of Economics’ Professor John Kay, the Kay Review, had concluded that quarterly reporting might encourage ‘short-termism’.
UK power grid operator National Grid, a FTSE 100 company, has been among the highest-profile companies to drop quarterly reporting. In January the company said ‘mandatory requirements to publish information can frequently provide an unnecessary focus on matters of little relevance to a long-term business.’
A top 20 investor in Diageo, which also plans to drop quarterly reports, says in an interview with the Financial Times this week that the decision is ‘a very good thing. We do not want companies obsessing over the short-term ups and downs of profits and sales. They need to have a clear long-term strategy in place, then profits and sales will follow.’
