In the United States, investor decisions swing from the judgements made by an almost religious adherence to the quarterly earnings report. Every 90 days, public companies are expected to deliver financial results that meet- or beat – Wall Street’s expectations. This system, known as quarterly capitalism, has created a culture of short-term thinking that undermines innovation, long-term value creation, and sustainable business practices. This is the primary reason small start-ups can show explosive results more quickly than large, publicly traded companies.
While transparency and accountability are important, the intense focus on quarterly performance does more harm than good. It pressures executives to prioritize short-term gains over long-term strategies, often at the expense of employees, customers, and shareholders themselves. I have even witnessed middle managers “managing expectations” of senior management in an effort to make beating quarterly expectations easier. If these middle managers are successful, this behavior leads to lackluster results, the evacuation of innovative efforts, and lazy salespeople/sales managers. Would you invest in THAT?
Consequences of Quarterly Capitalism:
- Hiring Decisions Suffer
The need to hit quarterly numbers can lead to a hiring strategy based more on optics than growth. Companies may delay or freeze hiring in the final weeks of a quarter just to make the numbers look cleaner. Conversely, they may overhire during a strong quarter to capitalize on perceived momentum- only to lay off those same workers months later when growth slows. This reactive behavior creates instability and makes it difficult for companies to build the cohesive, skilled workforces needed for sustainable innovation.
2. Capital Deployment Becomes Cautious and Constrained
Quarterly pressures also discourage bold, long-term investments. Projects that might take several years to bear fruit – like new technology platforms, research and development, or expansion into emerging markets often get shelved or underfunded. Why? Because the benefits are too far off to impress next quarter’s investors. Capital deployment becomes defensive, with companies hoarding cash or buying back stock rather than taking the kind of risks smaller, private companies would be willing to take for sustainable growth. Imagine what would happen if large companies actually took these risks and leveraged all of that capital they sit on!
3. Creative Accounting Gets Encouraged
When expectations become unrealistic, companies can be tempted to meet them through accounting acrobatics rather than real performance. Deferred expenses, aggressive revenue recognition, or non-GAAP adjustments become tools to smooth earnings and keep Wall Street happy. These methods may be technically legal but create a distorted view of a company’s true financial health and long-term potential. In some cases, they erode trust entirely- remember Enron? How about WeWork? When companies chase short-term perception instead of long-term value, the truth tends to come out eventually, often with devastating consequences. I have personally lived through such scenarios as an employee and can tell you the bad news ALWAYS gets out eventually. As a leader in a small startup at Caddis LLC, I am proud of our transparency, our long-term vision for dramatic growth in the Registered Investment Advisory and broker/dealer space through innovative lead generation programs, assistance with recruiting through the design and development of microsites, dynamic sales funnel management, and sales coaching for business development officers. More is available at https://www.caddis.info
4. What is the Alternative?
More investors and thought leaders are beginning to call for a shift away from quarterly earnings obsessions. Warren Buffett and Jamie Dimon, among others, have urged companies to focus on long-term performance and abandon the practice of providing quarterly earnings guidance. Some countries, like the UK, no longer require companies to report quarterly. The U.S. could benefit from similar thinking.
Investors should look beyond 90-day snapshots. Regulators should support policies that encourage long-term thinking. And corporate boards should measure CEOs by their ability t0 develop durable, resilient, companies – not just to manage an earnings call.
In the end, building something meaningful takes longer than a quarter. A great CEO who can share a vision that is clear and adoptable by investors and employees will be able to manage the greed that drives bad behavior from these quarterly calls. By demonstrating the steps that are being taken towards these big goals, the realistic economic expectations that come from these decisions, and the growth potential as a consequence – these leaders position their companies to achieve far more than the “safe bets” taken currently each quarter.
Jeff Mount is the CEO of Caddis LLC. Caddis provides the sales/marketing (and recruiting) support that so many RIAs and broker/dealers so badly need.
