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Pfizer joins band of companies rejecting short-termism

April 2006

Signs are emerging that one of the most significant barriers to investors taking a longer-term interest in a company is beginning to break down.

Pharmaceutical company Pfizer has become the latest large business to decide to end quarterly reporting of financial results on the grounds that it encourages short-termism, damaging the interests of the company and certain categories of investor.

One likely consequence is that businesses will have more latitude to take account of intangibles such as their social and environmental performance, which can take years to deliver a payback.

Other corporates, including Citigroup, Coca-Cola, General Motors, Ford, Intel and Motorola, have taken related action, and the US Chamber of Commerce has urged chief executives and chief financial officers to consider following their example, arguing that ‘many companies want to stop’ but feel compelled by the markets to continue.

There are signs, too, that financial analysts and investors are becoming less enamoured of short-term reporting. Merrill Lynch recently stated that its analysts will pay less attention to quarterly reports and more to longer-term forecasts.

Candace Browning, head of global securities research and economics at the investment bank said: ‘Merrill Lynch believes it would be in the best interests of investors if companies dropped quarterly earnings guidance. Market participants need to see it for what it is – a rough assessment of one indicator of a company’s wellbeing.’

Last month Sir Graeme Davis, chairman of the UK’s second biggest pension fund, the Universities Superannuation Scheme, called on institutional investors to put more emphasis on long-term investment and encouraged them to join the Marathon Club, an investor network dedicated to ending short-termism. Among those critical of quarterly reporting is former BT chairman Sir Iain Vallance (EP4, issue 2, p7).

Short-term reporting is now also attracting politicians’ attention. The US House of Representatives’ financial services committee is to hold a hearing that will touch on the subject.


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