In 1723, Vivaldi wrote The Four Seasons. His seminal work, the set of four violin concertos is meant to give the listener the impression of experiencing the weather of each of the seasons of the year.
Who would have thought 290 years later that such quarterly statements would come to rule the corporate world. Unlike Vivaldi's seasons, these are rather flat in their presentation.
I'm not sure if I just wasn't paying attention several years ago, or it simply wasn't that important until recently, but quarterly statements have become the be-all and end-all of the corporate world today. I'm not sure if they are a blessing, but certainly for many, they appear to be a curse. If a company doesn't make analysts' targets for their quarterly statements, the stock takes a beating.
Michael Dell, founder of the computer giant Dell, has led a $24 billion effort in recent months to take the public company private once again. The idea is they can be more nimble. As a private entity, they can choose the long game, instead of being a slave to investors' demands for ever-improving quarterly statements. In other words, they know at times the road may be rough, and occasionally the profit margin may take a beating, but in the long run, the company is viable.
On Aug 12, Blackberry, formerly Research in Motion, formed a committee looking at "strategic alternatives." This could be selling the company, alliances or even going private.
As The Globe and Mail noted, "Such a move would insulate BlackBerry from investor scrutiny as the company undertakes what has been a long and painful transition to a new operating system and line of smart phones."
In other words, in a world where 140 character tweets are now considered meaningful conversation, investors' collective attention spans are too short to stick it through until the company can turn around, and the stock will be pummelled as a result.
We've seen other companies become similarly short sighted. There's a trend now for companies to sell off their very-long held properties and then lease the same properties back. The rise of the REIT - real estate investment trust - is one of the big stories in Canadian business today. In July, Loblaws raised $400 million in an initial public offering for Choice Properties Real Estate Investment Trust. It was, to that point, the largest REIT IPO in Canadian history. BNN noted July 5, "The REIT also raised $600 million through issuance of senior debentures and completed a $200 million offering to George Weston Ltd., Loblaw's biggest shareholder.
"Loblaw had said it planned to spin off real estate worth more than $7 billion into a REIT and sell units of the trust through an initial public offering in July.
"The company said on (July 5) it sold a portfolio of 425 properties indirectly to the REIT for about $7 billion."
The idea here is to free up capital locked up in real estate. More importantly, it looks better on the quarterly financial statements today. But will it be beneficial in the long run? If you plan to be in business 20 years from now, won't you still need real estate to be based in?
To the common man, selling off property you already own to become your own tenant is ridiculous. But if, as a senior executive, you are only concerned about the next dozen quarterly statements before you either move on or retire, who cares about the long-term horizon? You want the balance sheet to look good now! Who cares about 10 years from now? You won't be there.
In Michael Dell's case, he does care. He built that company from scratch, and wants to keep it going.
Not that long ago, a prominent oil company in Saskatchewan's oilpatch all but shut down their drilling program for two months in the middle of summer. It was good drilling weather, the price of oil was good, and yet they were sitting on their hands, having released roughly 10 rigs. They had only one drilling. Hundreds, perhaps thousands of people, were directly and indirectly affected.
The result was the active drilling fleet was down by over 10 per cent from what it would usually be at that point of the year. One of the reasons I was given (among several) was that company had already met its projected production numbers for the quarter, and that there wasn't much point in drilling for more oil at that time because the markets were not likely to reward the company for its effort.
Companies need to make money, true, but being a slave to the quarterly numbers seems a little ridiculous to the common man. Maybe that's why common men (and women) don't run high finance. They might inject some common sense into the mix.
- Brian Zinchuk is editor of Pipeline News. He can be reached at [email protected]
