Last week, Labour leader Ed Miliband called for an end to quarterly updates to encourage long-term thinking in the City. Miliband argued that 12-week updates encourage decisions based entirely on short-term thinking.
Marketing industry figures argue quarterly reporting is also detrimental to long-term brand building, forcing public companies to favour short term tactics such as sales promotions to drive growth and satisfy the demands of the City.
In contrast, it is argued that private companies that have no legal requirement to report often demonstrate the ability to develop a strong brand strategy and growth based on long-term decisions.
Will King, founder and CEO of privately-owned King of Shaves, says: “Short term thinking is the enemy of everything. Investment in development takes time to get traction, especially in fmcg and with PLC’s giving quarterly guidance on growth, sometimes they are unable to think long term with an over-arching brand or product development strategy.
“So, if reporting was relaxed in the City and businesses were given more time to breathe and think big, maybe the future ROI would be better, and there would be less bumpiness in the profit and loss reporting.”
Chris Arnold, creative director of Creative Orchestra, claims that “shareholders are the biggest enemy of good brand building because they don’t understand brands – they’re just interested in money. [Long-term thinking] is a hard thing to go back to and needs strong leaders who can turnaround and change. If Government drives it, that’s one way to achieve it.”
Arnold believes that digital is a driver of short-term thinking in marketing because it makes the profession about numbers. He adds a brand boasting 100,000 Likes is “one way to keep the board happy”.
He points to “angel investors”, early backers of start-ups, who take a longer term view because they are not interested in “quick results” but want a “steady upward swing” over five years.
Attracting the kind of shareholders that take a long term view is one way to ensure that a business can focus on long term brand building not short term tactical marketing, others add.
Paul Polman, CEO of Unilever, has previously said that the firm, which is the world’s largest FMCG company, is not interested in attracting shareholders with a short term view, but long-term investors who are concerned with the long term success and health of the business and its brands.
Speaking at an event earlier this year, Polman said: “One of the most dangerous trends in our modern capitalist society has been the tendency towards short term thinking. For us, feeding an investor community that wants quarterly guidance is not conducive to effective business management.
“That’s why we have abandoned guidance and moved away from quarterly profit reporting. We don’t run the business on 90 day horizons, so why report on that basis? We have also restructured our compensation arrangements to put more emphasis on rewarding performance over the longer term.”