Warren Buffett, Jamie Dimon (Berkshire Hathaway, JPMorgan Chase CEO, CEO) – Warren Buffett | Jamie Dimon | The End Of Short-Termism (Jun 2018)


Chapters

00:00:00 Quarterly Earnings Forecasts: A Harmful Practice
00:08:32 Current Economic State and Long-Term Outlook
00:14:24 Concerns and Outlook on Trade, Labor, and Economic Performance
00:21:10 Healthcare Innovation Initiative
00:25:00 Business and Government Collaboration in a Rapidly Changing World

Abstract

The Future of Corporate Governance and Economic Growth: Insights from Warren Buffett and Jamie Dimon

Moving Beyond Short-Term Earnings: A Call for Sustainable Business Practices

In a groundbreaking stance, the Business Roundtable, under Jamie Dimon’s leadership, is advocating for a significant shift in corporate governance – a move away from short-term earnings guidance. This initiative, supported by Warren Buffett, aims to redirect corporate focus from fleeting quarterly profits to enduring growth and sustainability. Jamie Dimon, the CEO of JPMorgan Chase and Chairman of the Business Roundtable, believes that quarterly earnings forecasts can create a short-term focus that may lead companies to make decisions that are counterproductive to long-term growth. Warren Buffett, Chairman and CEO of Berkshire Hathaway, agrees, saying that quarterly earnings forecasts can lead to companies making decisions that are not in the best interests of the business or the country. Dimon and Buffett believe that eliminating quarterly earnings guidance will allow companies to focus more on long-term growth and innovation.

The goal is to improve employee satisfaction, reduce fraud, administrative costs, overuse/underuse of drugs and specialized procedures, and end-of-life costs while improving outcomes and providing more choices. Jamie Dimon has received some initial feedback from employees, who are curious about what the initiative means for them. Dimon assures employees that the initiative aims to improve their lives, wellness, outcomes, and choices, leading to cost savings and healthier employees.

Rethinking Leadership Roles: Boards and CEOs

The discussion underscores the vital role of corporate boards and CEOs in this paradigm shift. Boards are encouraged to foster a long-term strategic vision, while CEOs must withstand the pressure of short-term earnings expectations. Dimon and Buffett have witnessed companies making decisions that harm their long-term interests in an effort to meet quarterly earnings forecasts. They have also seen management teams tempted to manipulate financial results to meet earnings targets, leading to a vicious cycle of deception. Buffett emphasizes that quarterly earnings are often influenced by factors beyond a company’s control, such as weather, commodity prices, volumes, and competitor pricing. Transparency and robust communication with investors are highlighted as key to maintaining this focus.

Dimon acknowledges that being a CEO does not naturally translate to success in politics. He highlights the challenges of getting involved in politics, such as the need to fight for votes and the difficulty of winning an election. Dimon believes that CEOs are not accustomed to these challenges and that not all CEOs are suited for political roles. Ken Langone, a guest host on Squawk Box, believes that the election of Donald Trump as president has expanded the pool of potential political leaders to include business leaders. He views this as a positive development and believes that business leaders can bring valuable skills and experience to government.

Buffett’s Long-Term Investment Philosophy

Warren Buffett, renowned for his investment acumen, advocates for a long-term investment perspective, likening businesses to ‘unfinished paintings’ with limitless potential. He urges companies to operate with a half-century horizon, prioritizing decisions that yield long-term benefits over short-term gains. Buffett strongly advises against succumbing to the pitfalls of quarterly earnings predictions, which he believes can lead to distorted decision-making and unethical practices. Buffett suggests that companies should communicate with investors as if they were sole partners in the business, providing information about important developments, upside and downside possibilities, and long-term investments. He believes that companies should focus on running the business as if it were a 50-year partnership, without the pressure of short-term earnings targets.

Warren Buffett and Jamie Dimon, along with Jeff Bezos, have formed a joint venture to address rising healthcare costs for their employees and potentially for the entire country. The three partners have agreed on a new CEO for the healthcare initiative. Todd Combs led a thorough selection process, and they believe they have found an outstanding individual with the right character, culture, capability, heart, and mind for the long-term. An announcement regarding the new CEO is expected within two weeks. Warren Buffett has also discussed the initiative with a group of CFOs from their subsidiaries, who are interested in the subject. During interviews with prospective CEOs, all candidates agreed that significant improvement in healthcare is possible and crucial. Buffett emphasizes the difficulty of making major changes but notes that everyone involved is cheering for their success.

The Necessity of Meaningful Investor Communication

The necessity for companies to engage in meaningful communication with investors is emphasized. Buffett recommends that companies communicate with investors as if they were sole partners in the business, providing information about important developments, upside and downside possibilities, and long-term investments. He believes that companies should focus on running the business as if it were a 50-year partnership, without the pressure of short-term earnings targets. Sharing information critical to long-term decision-making, such as potential risks and rewards, investment strategies with future payoffs, and strategic initiatives, is encouraged to build investor trust and transparency.

Dimon’s Perspective on Quarterly Earnings Guidance

Jamie Dimon, echoing Buffett’s sentiments, raises concerns about the manipulation of quarterly earnings guidance, which can result in misleading financial results. He urges CEOs to abandon this practice, reassuring them that informed shareholders will appreciate the focus on long-term value creation. Dimon notes that 60% of BRT members currently provide annual earnings guidance, while only 20% provide quarterly guidance. The BRT hopes that this move will encourage companies to focus on long-term growth and innovation.

Jamie Dimon believes that business leaders should collaborate with the government and be involved in political affairs. He emphasizes the need for business leaders to understand the issues facing the government, such as poverty, incarceration, and education. Dimon encourages business leaders to help the government address these issues through their involvement in politics.

Redefining Corporate Governance for American Business

This shift in corporate governance, as proposed by the Business Roundtable, marks a significant transformation in American business. Moving away from maximizing short-term profits to emphasizing long-term sustainability, innovation, and stakeholder value, this change is poised to enhance the overall health and competitiveness of American companies.

Economic Resilience and Growth Outlook

Both Dimon and Buffett exhibit optimism about the long-term growth potential of the US and global economies, despite short-term challenges. Dimon compares the current economic state to the sixth inning of a baseball game, indicating significant room for growth. He highlights the positive factors contributing to the economy, such as strong consumer spending, low debt levels, and favorable business and consumer sentiment. Buffett confirms the current economic strength, likening it to a baseball lineup with top batters at the plate. He expresses confidence in America’s long-term economic prospects, expecting significant advancements over the next 10, 20, and 30 years. They emphasize the resilience and adaptability of economies, highlighting the importance of focusing on enduring trends and investments.

Dimon and Buffett on Current Global Challenges

The duo also touches upon various global and economic challenges, including Italian political instability, the threat of nuclear proliferation, and the ongoing reforms in the European Union. Dimon acknowledges these issues but remains confident in the stability and future of these regions. Dimon addresses the recent market volatility caused by political uncertainties in Italy, highlighting the importance of recognizing potential risks. He emphasizes the resilience of the American economy and its ability to overcome challenges, drawing attention to books like “Factfulness” and “The Better Angels of Our Nature” that emphasize human progress and resilience. Dimon expresses optimism about the future of the eurozone, emphasizing the importance of monetary union and the efforts being made by leaders like Merkel and Macron to strengthen the union.

Labor Market Dynamics and Trade Policy

The discussion delves into current labor market conditions, with Dimon recognizing the labor shortage and low unemployment rates as signs of economic strength. A shortage of labor in certain industries, such as home building and trucking, persists despite low unemployment. The market system will work towards solving the problem, but higher wages may be necessary. Dimon believes that addressing trade issues with China through negotiation is more effective than imposing tariffs, which can lead to unpredictable outcomes and potential retaliation. Business leaders are concerned that escalating trade tensions could negatively impact investment and prices. Dimon supports modernizing NAFTA and believes that withdrawing from the Trans-Pacific Partnership (TPP) was a mistake. Dimon suggests that addressing trade issues through negotiation and working with allies to set global standards is a more effective approach than imposing tariffs.

The Healthcare Initiative: A New Frontier

Warren Buffett and Jamie Dimon, along with Jeff Bezos, have formed a joint venture to address rising healthcare costs for their employees and potentially for the entire country. The announcement of a new CEO for this initiative underscores their commitment to tackling healthcare challenges, such as fraud, administrative costs, and inefficiencies.

Political Aspirations and Business Leaders’ Role in Governance

Both leaders dismiss any presidential ambitions, instead focusing on the essential collaboration between business and government. They highlight the unique challenges business leaders face in political roles and stress the importance of engaging with government to address societal issues.

A Holistic Approach to Business and Society

In summary, Warren Buffett and Jamie Dimon’s insights provide a comprehensive view of the evolving role of corporate governance, the importance of long-term economic strategies, and the intricate dynamics of global challenges. Their perspectives advocate for a holistic approach, intertwining business practices with societal progress, and emphasize the critical need for business leaders to engage actively in shaping a sustainable future.


Notes by: Alkaid