Is it time to end the quarterly profits business model? (ethical, companies)

[tablemtn]

There are strong arguments from economists and psychologists that this model helps create very harmful short-term thinking and business decisions - when companies need to churn out profits every quarter, they take riskier decisions which sometimes backfire spectacularly.

This also leads executives to take far more risks than they otherwise might - since, if they can get through a few quarters using dubious accounting methods or business strategies, they can take their profits and take off to another job.

Layoffs may also be more common under a quarterly profits model than others - since companies need to "cut costs" rapidly to bolster profits on a quarterly basis, there is less desire to hold on to workforces through lean times - even though research shows that downsizing is often a much worse economic decision over many quarters.

Should we start moving our tax structure and market regulation against the hardline quarterly profits model, and instead try and reward longer-term results?

[Werone]

I think the key here is in company ethics. With any business, you must have a metric to measure performance and efficiency. Daily, weekly, quarterly, or yearly reporting is not the cause of unethical practices. Unethical people do that! If I invest in a company, then I want to know of weekly sales pursuits and what we are doing to improve efficiency. There are too many factors here.... like if I am a doctor, and I want to increase sales... thats unethical already, unless I want to take customers from another doctor......!

[tablemtn]

Well, it's not really about fraud or unethical practices.

It's about how the quarterly profits model in particular tends to shape expectations, reactions, and economic outcomes.

It's possible that a system based on annualized profits would encourage somewhat longer-term thinking. Especially if we modify the tax law to incorporate "clawback" provisions for executives whose companies collapse shortly after they take off.

[smokingGun]

I don't think you can convince Fortune 500 management or Wall St. I-banking types to look beyond the here & now since the velocity of info has accelerated so much. Everyone is compensated for results in the near future, not in 3 or 5 years. In fact the highly-paid VP's and Directors of investment houses seem to feel that a company's worth is determined solely by its stock price & the number one goal of employees should be to increase value to shareholders, irregardless of their customers, product development or future goodwill. With that kind of short-sighted perspective it's no wonder they turn to quick accounting schemes, derivative gambles, or questionable M&A's.

[texdav]

I thnikt aht investors deserve such information as without it they are just guessing.We certianly don't want companies hiding it for a year how they are doing to investors.

[peptea]

yes, it is time. our economy needs to be geared toward long-term thinking and investment.

[tablemtn]

We certianly don't want companies hiding it for a year how they are doing to investors.

That's a good point, but actually, I might demand MORE data from companies, while at the same time, not going by the quarterly model.

We can do this - at first - by changing aspects of the tax structure to incentivize longer-term investments.

[Robert_J]

Originally Posted by peptea

yes, it is time. our economy needs to be geared toward long-term thinking and investment.

Not the economy but changing the mindset of investors. When the whole internet investing craze started, "day traders" not only wanted to make a profit every quarter, they wanted to make a profit every day. There needs to be a change in the mindset of investors.