Ad execs hope quarterly earnings reform can ease short-termism, but it’s no silver bullet

At the end of this month, they’ll want to see early evidence that projected holiday sales are materializing. Positive noises on the next quarterly call would buy Hill more space and time, while negative or neutral signals will reduce his room for movement. It’ll be a crucial test for the apparel brand, one its leaders might wish they could postpone.

This kind of crunch has become endemic within marketing. Relief may come from an unlikely direction: the notably impatient President Donald Trump, who this week called for an end to quarterly earnings reports for public companies, a requirement enforced by the Securities and Exchange Commission (SEC), on his social media platform Truth Social.

Most ad execs hate Trump’s guts, but could find an ally in the commander-in-chief should the SEC’s promise to “prioritize” his proposal lead to actual policy change.

Quarterly earnings reports are supposed to provide transparency and an opportunity for scrutiny to public shareholders. (They also give reporters regular chances to cut through the pablum spouted by CEOs and their handlers.) In recent years, they’ve become struggle sessions for the boardroom set and been blamed for a culture of short-term thinking throughout the entire corporate world.

Critics like Warren Buffett have long argued that Wall Street expectations of perpetual quarter-upon-quarter growth leads companies to hold back on long-term investments in staff, research or equipment in favor of financial engineering that delivers quarterly sugar hits and detracts from sustainable growth. Three-fifths of execs were willing to delay projects in order to meet short-term shareholder expectations, according to a 2016 McKinsey and FCLTGlobal survey.

Perhaps more than most other industries, advertising is plagued by microwave-oven thinking. Marketers are tasked with beating sales targets with one hand while shoring up their companies’ long-term commercial health (in a way that can be clearly measured) with the other. Agencies are briefed to help them deliver both, quickly — and if they too are part of a public company, they’re expected to also persuade their client to re-up before the next sparring match with analysts.

That’s a problem for a business in which the most powerful benefits of its best products — big Ideas like “Just Do It”, or long-term AOR relationships — are witnessed over decades, not quarters.

A creative effectiveness study published by System1 and the Effies in June estimated that campaigns that ran continuously for over six months were five times more effective, and those that ran for three years were 7.5 times as powerful. In the words of EssenceMediacom chief strategy officer Richard Kirk, short-term thinking is “anathema to effective advertising.” 

Such wait-and-see arguments don’t go down well in a world measured in 12 week increments. Providing public companies with some of the same discretion private companies are able to operate under might give them license to operate over a longer-term basis, said Michael Seidler, founder and CEO of consultancy Madison Alley told Digiday.

But it’d be far from a panacea. “Many public companies are under short-term pressure and have incentives to drive profitability… quarterly reporting, in and of itself, is not the issue,” he said.

“Short-term thinking comes from management, not from the need to report quarterly,” argued Madison & Wall analyst Brian Wieser. “Too many people are too focused on what’s right in front of them, and they don’t have the conviction of their views to have a long term view.”

After all, public companies in the U.K. and E.U. are only legally obliged to provide half-year results. The less restrictive reporting environment hasn’t led to Paris-listed Publicis Groupe, or Amsterdam-listed Havas taking a longer view than their American peers, while those making their berth on Paternoster Square don’t seem to enjoy the break from scrutiny. Big British firms like chipmaker ARM have continued to flee the LSE for New York, while re-listing WPP was considered by the latter’s outgoing CEO Mark Read as recently as January and may yet be on the cards under new boss Cindy Rose. 

In any case, most firms still opt-in to quarterly reporting. Reducing reporting frequency doesn’t mean a business will be run better, or change the terms on which success is measured, explained Matthew Lacey, partner at M&A advisers Waypoint. “Growth is still important. Profit margins are still important … it’s not fundamentally changing the basis upon which you operate,” he said.

And maintaining shareholder confidence is paramount for public firms hoping to harness investors’ cash for their own expansion. A less transparent market might be a more reactionary one.

“Clarity and frequency of information is what drives confidence in the market,” said Lacey. “Take away [some of] the elements they’re seeing on a quarterly basis, and you might see more swings, more volatility in share price as annual or half-year results come around.”