Corporate America has a real problem with short-termism. JPMorgan CEO Jamie Dimon and Berkshire Hathaway CEO Warren Buffett's solution is to get rid of guidance, which would eliminate transparency and put companies at risk. Their solution also treats CEOs like a bunch of babies with no self control. Do better. In a Wall Street Journal oped out Thursday, JPMorgan CEO Jamie Dimon and Berkshire Hathaway CEO Warren Buffett suggested earnings guidance should be eliminated. They reasoned the reports incentivize CEOs to think too short term in an effort to constantly beat Wall Street's expectations. "I've been on 20 boards of publicly owned companies, not counting Berkshire's, and I have seen managements that I really think well of personally," Buffett told CNBC Thursday. "I'd be glad if they married my daughter or were named as executors of my will or moved in next door. But they get tempted by the predictions that have been made. Their ego gets involved. And when they find they can't make the numbers, sometimes they make up the numbers." How awful it must be for them. Being a CEO is hard, but it should be. They make a lot of money. So let's talk about solving this very real problem with short-term thinking another way — a way that makes more sense for shareholders interested in transparency and good corporate governance. Instead of eliminating transparency, how about we reward CEOs for thinking long term? How about we teach people in business school that corporations are not just shareholders, but also employees and customers and communities? How about we change their payment packages to incentivize longer-term thinking? How about we expect CEOs to act like stewards instead of treating them like infants with no self control? Buffett and Dimon want to take away temptation, but what they're proposing does nothing to solve our real, deep rooted problem with short-termism. That goes back to how CEOs are trained to think of companies from business school til the end of their careers — it has to do with who they think matters, and who they don't think about at all. Seriously, fire whoever came up with this First things first: If you want CEOs to think long term, you should allocate stock-option awards around long-term performance and put some real clawbacks in place. Some real consequences may have made JPMorgan more vigilant during one of its most recent scandals that had nothing whatsoever to do with guidance — the $6.2 billion loss the bank experienced in 2012 because of the rogue 'London Whale' trader. Dimon got a slap on the wrist for that foible. There were no real consequences, and it certainly hurt shareholders. But I digress. The relentless drive to beat guidance (and earnings) quarter after quarter is just a symptom of a greater problem with shareholder primacy. In the 1970s, thanks to economic scarcity and some imaginative economists in Chicago, Americans started telling themselves the most important part of a company was its shareholders — and basically, only its shareholders. Noted economist Milton Friedman wrote in The New York Times Magazine in 1970 that a corporation's only "social responsibility of business ... [is] to increase its profits" for shareholders who "own" the corporation. And that means the stock price has to stay up by any means necessary, no matter what it does to your employees, your community or your customers (see: Wells Fargo... or Facebook). "The purpose of corporations used to be to innovate, creating universities, building railroads, designing self-driving cars, and looking into commercial space transport," Lynn Stout, a professor at Cornell Law School and the author of "The Shareholder Value Myth," said in an interview with Marketplace in 2016. "These are really big long-term projects ... and what corporations are supposed to do." And they used to do that, and believed that they should. In the first half of the last century, two professors, Adolph Berle of Columbia University and Merrick Dodd of Harvard Law, duked it out over whether companies lived for shareholders. Berle took the side of shareholders, and Dodd took a more holistic approach. "The business corporation," Dodd said in a 1932 issue of the Harvard Law Review, is "an economic institution which has a social service as well as a profit-making function." In other words, Dodd argued that corporations are supposed to enrich the economy, provide workers with a decent wage and purchasing power, and create high-quality products. This was known as the "managerialist view," and it basically won out through the 1960s. Even Berle eventually capitulated. If you think of corporations that way — in a way that gives it a greater purpose in American society — you solve the problem Dimon and Buffett are talking about without sacrificing transparency. Stock price, you may be surprised to hear on a business publication, is just one metric by which we can judge a company. If shareholders are not the most important thing in the world, you will spend money on longer-term projects that build your customer base or keep your employees healthy and happy. We should be teaching that at business schools, we should be talking about it on CNBC, and in the pages of the Wall Street Journal. We should not be treating grown adults like babies.<doc-sep>Two of Wall Street's harshest bitcoin critics say investors should remain wary of the cryptocurrency. "I don't want to be a bitcoin spokesman," J.P. Morgan Chase CEO Jamie Dimon said in a rare joint interview with Warren Buffett that aired Thursday on CNBC's "Squawk Box." "Just beware,“ he said. Dimon called bitcoin a "fraud" in September and later said those "stupid enough to buy it" will one day pay the price. He said in January he regretted the "fraud" comment. In May, Berkshire Hathaway Chairman and CEO Warren Buffett told shareholders that bitcoin is "probably rat poison squared." "I set a high standard. I don't know whether Jamie can top me or not," Buffett told CNBC during the rare joint interview with Dimon. The interview was recorded Wednesday. Bitcoin has lost more than half its value since topping $19,000 in mid-December.<doc-sep>Two of the world’s most influential business leaders — billionaire investor Warren Buffett and Wall Street banking boss Jamie Dimon — on Thursday made an urgent call to fellow executives: stop giving out quarterly guidance and start focusing on long-term results. Critics, however, say that while their call is well intentioned, it misses a crucial point: What Buffett and Dimon decry as “short-termism” isn’t the result of quarterly guidance, it’s the result of quarterly earnings reporting — a practice that Buffett, the chairman of Berkshire Hathaway BRK.A, +0.12% BRK.B, +0.05% and Dimon, chairman and chief executive of JPMorgan Chase & Co. JPM, -0.01% , took pains to endorse. “Our views on quarterly earnings forecasts should not be misconstrued as opposition to quarterly and annual reporting,” the pair wrote in a Thursday guest column in The Wall Street Journal. “Transparency about financial and operating results is an essential aspect of U.S. public markets, and we support being open with shareholders about actual financial and operational metrics.” But reporting earnings on a less frequent schedule, for example once every six month, would be a better solution to short-termism in equity markets, according to John Kay, a U.K.-based economist and author of “Other People’s Money: The Real Business of Finance,” a critique of the outsize role of the finance sector in Western economies. “What is changing in three-month intervals does not tell us anything about how a company is positioned to deal with long-term growth,” Kay said in an interview with MarketWatch. In their critique, Buffett and Dimon argued that financial markets “have become too focused on the short term. Quarterly earnings per share guidance is a major driver of this trend and contributes to a shift away from long-term investments.” How guidance works Since corporate earnings are measured against consensus analysts forecasts, it is often expeditious for companies to attempt to massage those expectations. Over the decades, companies have become so good at the task that earnings have beat forecasts at a faster rate over time, according to Jill Carey Hall, equity and quant strategist at Bank of America Merrill Lynch. “There is a tendency by corporations to set conservative numbers so that EPS beats come through,” Hall said. But it appears that investors also view guidance as a sign of transparency and reward such companies with higher valuations relative to companies that don’t issue guidance. “History suggests that beginning in mid-2000, companies that regularly issue profits guidance have begun to trade at a premium on book value to those that do not guide at all. This premium may be granted for transparency, and we have found that it is generally most pronounced in cyclical sectors,” Hall said. Nonetheless, companies are already making less use of guidance, according to Hall. As seen in the chart below, since early 2000, when S&P 500 SPX, +0.19% companies almost always issued quarterly guidance, the frequency has steadily declined. Now, only about a third of companies provide guidance each quarter. The U.K. experience Kay was asked by the U.K. government to review activity in U.K. equity markets and its impact on the long-term performance and governance of U.K.-listed companies. Kay recommended the elimination of mandatory quarterly reporting in favor of semiannual reporting and phasing out of management guidance on earnings expectations. His other recommendations included the adoption of a stewardship code, the establishment of a forum for collective engagement by investors, the clarification of fiduciary duties of trustees and their advisers, and the rebating to investors of all income from stock lending. In 2014, the U.K.’s Financial Conduct Authority removed its quarterly reporting requirement, though more than 90% of U.K.-listed companies continue to report on a quarterly basis. “Many of these companies are also listed in the U.S. and have to report quarterly anyway, so they continue to report in the U.K.,” said Kay. Ultimately, the move away from short-termism would require many other reforms in the finance industry, he said, including aligning incentives of investors and companies. “Ideally, analysts would be employed by the buy-side and they would be experts in the business, rather than finance. As it is, analysts are trying to guess what other analysts would forecast,” he said.<doc-sep>
Berkshire Hathaway CEO Warren Buffett, J.P. Morgan CEO Jamie Dimon and Amazon CEO Jeff Bezos have chosen a CEO for their health-care venture and will likely reveal the name within two weeks, Buffett told CNBC on Thursday. The three announced a partnership in January to tackle rising health-care costs. Buffett said they've picked a leader and are "just tidying up a couple of things." In an interview with CNBC's Becky Quick, Buffett and Dimon praised their incoming leader and acknowledged the daunting task ahead. Health-care experts have expressed skepticism on whether the three, while business icons, could simplify the current system. Many agree there's plenty of costs to cut, but they doubt the companies can do it. Jeff Bezos, Warren Buffett and Jamie Dimon. Getty Images (l) | CNBC (c-r) The interesting thing when interviewing job candidates, Buffett said, was they didn't run into one that "didn't think significant improvement was both possible and important." "It isn't like there's anybody out there that's connected with the system that thinks we've already arrived at nirvana, and they know how difficult the job will be to make major changes," Buffett said. "They're all cheering for us to succeed. "A number of them might not have wanted to be the one to help us succeed, ... but nobody disagreed with the mission, the importance of it or the feasibility," Buffett said. "But it's also a very, very tough nut to crack, and it's going to take significant time. We've got the right person." As CNBC has reported, Todd Combs, an investment manager at Berkshire, has been the lead recruiter for the venture, tasked with the tall order of finding a leader who can work across three companies with a combined 1.2 million employees and simultaneously help develop innovative solutions in a multitrillion-dollar industry. In addition, any candidate would have the pressure of the high-profile mission as well as the weight of working under these three business leaders. Where to focus efforts