Hedge fund Elliott Management Corp Chief Executive Paul Singer said on Thursday he agreed with billionaire investor Warren Buffett and JPMorgan Chase & Co (JPM.N) CEO Jamie Dimon that companies should move away from providing quarterly earnings guidance.
In a CNBC "Squawk Box" program interview and an opinion piece published in the Wall Street Journal, Buffett and Dimon said quarterly forecasts, known on Wall Street as "guidance", take up management's time and lead to decisions that don't benefit companies or their shareholders.
The pressure to meet short-term estimates has contributed to a fall in the number of United States public companies, wrote Buffett, the chairman of Berkshire Hathaway, and Dimon, who is also the chairman of top executives' lobbying group Business Roundtable, in a Wall Street Journal article on Wednesday.
It is a long-simmering debate but one that has gotten more attention in an era when activist investors are more vocal about pushing companies to deliver on their promises.
Buffett's Berkshire Hathaway doesn't give guidance, which Buffett has said can tempt executives to manipulate numbers to meet Street expectations.
According to Buffett and Dimon, the focus of companies on short-term profits run counter to the long-term interests of the business. "Such short-termism is unhealthy for America's public companies and financial markets - which are critical to economic growth and financial prosperity", Business Roundtable said in a statement. Buffett and Dimon said Thursday that a CEO has been hired to lead that effort, and the companies expect to announce that choice within the next couple weeks.
Quarterly earnings guidance works like this.
However, those favouring the practice vouch that it improves communications with Wall Street, reduces share price volatility and boosts a stock's value, the report said.
Quarterly results are influenced by the weather, commodity prices and other factors beyond the control of CEOs, Dimon said.