Top performing business leaders never trade long term value for short term profits. Rory, I believe, is very aware of this.
Breaking the Short-Term Cycle
Discussion and Recommendations on How Corporate Leaders,
Asset Managers, Investors, and Analysts Can Refocus on Long-Term Value
Panel encourages corporate leaders, asset managers, institutional investors, and analysts to:
Earnings Guidance
1. End the practice of providing quarterly earnings guidance.
2. However, companies with strategic needs for providing earnings guidance should adopt
guidance practices that incorporate a consistent format, range estimates, and appropri-
ate metrics that reflect overall long-term goals and strategy.
3. Support corporate transitions to higher-quality, long-term, fundamental guidance prac-
tices, which will also allow highly skilled analysts to differentiate themselves and the value they provide for their clients.
Incentives and Compensation
1. Align corporate executive compensation with long-term goals and strategies and with long-term shareowner interests. Compensation should be structured to achieve long- term strategic and value-creation goals.
2. Align asset manager compensation with long-term performance and with long-term client interests.
3. Improve disclosure of asset managers’ incentive metrics, fee structures, and personal ownership of funds they manage.
4. Encourage asset managers and institutional investors to develop processes for ensuring that the companies in which they invest use effective, long-term, pay-for-performance criteria in determining executive compensation.
Leadership
1. Endorse corporate leadership in communicating long-term strategic objectives and related performance benchmarks rather than in providing quarterly earnings guidance.
2. Support analysts and asset managers in using a long-term focus in their analyses and capital investment decisions.
3. Promote an institutional investor focus on long-term value for themselves and when evaluating their asset managers.
Communications and Transparency
1. Encourage companies to provide more meaningful, and potentially more frequent, communications about strategy and long-term vision, including more transparent finan- cial reporting that reflects a company’s operations.
2. Encourage greater use of plain language communications instead of the current commu- nications dominated by accounting and legal language.
3. Endorse the use of corporate long-term investment statements to shareowners that will clearly explain—beyond the requirements that are now an accepted practice—the compant’s operating model.
4. Improve the integration of the investor relations and legal functions for all corporate disclosure processes in order to alleviate the current bifurcated communications that confuse, rather than inform, investors and analysts.
5. Encourage institutional investors to make long-term investment statements to their ben- eficiaries similar to the statement the Panel is asking companies to make to their share- owners.
Education
1. Encourage widespread corporate participation in ongoing dialogues with asset man- agers and other financial market leaders to better understand how their companies are valued in the marketplace.
2. Educate institutional investors and their advisors (e.g., consultants, trustees) on the issue of short-termism and their long-term fiduciary duties to their constituents.
3. Support education initiatives for individual investors in order to encourage a focus on long-term value creation.
http://www.corporate-ethics.org/pdf/Short-termism_Report.pdf
Breaking the Short-Term Cycle
Discussion and Recommendations on How Corporate Leaders,
Asset Managers, Investors, and Analysts Can Refocus on Long-Term Value
Panel encourages corporate leaders, asset managers, institutional investors, and analysts to:
Earnings Guidance
1. End the practice of providing quarterly earnings guidance.
2. However, companies with strategic needs for providing earnings guidance should adopt
guidance practices that incorporate a consistent format, range estimates, and appropri-
ate metrics that reflect overall long-term goals and strategy.
3. Support corporate transitions to higher-quality, long-term, fundamental guidance prac-
tices, which will also allow highly skilled analysts to differentiate themselves and the value they provide for their clients.
Incentives and Compensation
1. Align corporate executive compensation with long-term goals and strategies and with long-term shareowner interests. Compensation should be structured to achieve long- term strategic and value-creation goals.
2. Align asset manager compensation with long-term performance and with long-term client interests.
3. Improve disclosure of asset managers’ incentive metrics, fee structures, and personal ownership of funds they manage.
4. Encourage asset managers and institutional investors to develop processes for ensuring that the companies in which they invest use effective, long-term, pay-for-performance criteria in determining executive compensation.
Leadership
1. Endorse corporate leadership in communicating long-term strategic objectives and related performance benchmarks rather than in providing quarterly earnings guidance.
2. Support analysts and asset managers in using a long-term focus in their analyses and capital investment decisions.
3. Promote an institutional investor focus on long-term value for themselves and when evaluating their asset managers.
Communications and Transparency
1. Encourage companies to provide more meaningful, and potentially more frequent, communications about strategy and long-term vision, including more transparent finan- cial reporting that reflects a company’s operations.
2. Encourage greater use of plain language communications instead of the current commu- nications dominated by accounting and legal language.
3. Endorse the use of corporate long-term investment statements to shareowners that will clearly explain—beyond the requirements that are now an accepted practice—the compant’s operating model.
4. Improve the integration of the investor relations and legal functions for all corporate disclosure processes in order to alleviate the current bifurcated communications that confuse, rather than inform, investors and analysts.
5. Encourage institutional investors to make long-term investment statements to their ben- eficiaries similar to the statement the Panel is asking companies to make to their share- owners.
Education
1. Encourage widespread corporate participation in ongoing dialogues with asset man- agers and other financial market leaders to better understand how their companies are valued in the marketplace.
2. Educate institutional investors and their advisors (e.g., consultants, trustees) on the issue of short-termism and their long-term fiduciary duties to their constituents.
3. Support education initiatives for individual investors in order to encourage a focus on long-term value creation.
http://www.corporate-ethics.org/pdf/Short-termism_Report.pdf
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