And you thought the stock market turns CEOs into short-term thinkers now. Just wait five years. Reporting earnings per share every three months may be looking like a long-term, conservative practice.
Gartner Research Fellow James Popkin last week predicted that the inexorable drive to “real-time” reporting of financial information within companies will lead before long to the reporting of earnings on a per-share basis every day.
This is a tightening of the screws from just a year ago, at last springs Gartner Symposium and IT Expo. Way back then, when the dot-com bubble was just beginning to burst, the company projected that by 2005, one American company would announce quarterly earnings before its fiscal quarter actually ended.
Now, full disclosure is a great thing. No one is for withholding information from the investors who supply the money that greases the wheels of American capitalism. But there can be too much of a good thing. Putting it bluntly, Michael D. Fleisher, the CEO of Gartner, a public company, said, “There isnt a [CEO] of a public company in their right mind that would want daily EPS.” Having to deal with “concerned” shareholders once a year (at annual meetings) and Wall Street analysts four times a year is enough for most CEOs. To up the ante to every day would be enough to cause many stress-related strokes.
Once companies can report financial information daily, itll become only a matter of time before they do.
As we trudge through the Recession That Goes By Any Other Name, companies try to save their stock by warning of profit shortfalls in “pre-announcements.”
Well, when the pendulum starts swinging back the other way, you probably will see some sharp companies jumping ahead of the pack. Youll see “pre-announcements” of profits that will meet or exceed expectations.
In a couple of years, as companies internal reporting systems improve, theyll start reporting revenue and profits on a weekly, then daily basis. To themselves.
But the day will come, probably before this decade is out, when some self-interested corporation will seek to boost a limping stock price by “pre-announcing” results weeks ahead of a quarters close. And somehow, the word will leak out that the forecast is based on daily financial results that had been reviewed by the CEO, chief financial officer and chief information officer.
Then, investors will insist that any right-thinking company should be able to collate financial results every day — and report them to the public. After all, public shareholders frequently are majority owners of the company.
Then, just imagine what positions companies will get themselves into. Meeting quarterly sales goals made Lucent Technologies do all kinds of funky things.
Of course, there will be practical reasons to maintain — and report — daily financial results. Gartner Research Director Carol Rozwell contends that managers will be better off making critical decisions every day if theyre basing their choices on information that is only hours old, instead of days or weeks.
What could emerge is a new “digital divide,” where companies that enjoy “instantaneous information” on their operating performance gain competitive advantage over rivals who dont. After all, theyll be able to respond to changes in market demand faster. Fewer inventory write-downs. Greater sales. More profit. Higher stock price. And, with that, ironically, a better ability to swallow other companies.
Somehow, though, daily reporting of earnings — at least to the public — sounds like one of those predictions with a continually receding horizon. Kind of like interactive television.
A Gartner survey from last July showed that 22 percent of companies only close their books once a year. Another 23 percent close their books every quarter. Almost half — 49 percent — report monthly. Only 6 percent closed books either weekly or daily.
Doesnt really look like the arrival of instantaneous information will happen instantly. And, in the case of daily earnings reports, never could be too soon.