At the Wall Street Journal‘s recent CFO Network Conference, Glenn Hutchins, CEO of PE firm Silver Lake, said the expectations of analysts and shareholders created resistance for companies wanting to invest in new businesses and technologies. CFOs, he said, find it hard to make transformative investments because “making a short-term diminution for the purpose of a long-term gain is very difficult to do” in the equity markets. Pardon me, but bullshit.
If companies feel constrained by short-term expectations, it is their own fault. If a CEO/CFO wants to focus on long term and get shareholder support for a series of large investments, he/she needs have a sound strategy and get to work selling it to investors, analysts, journalists and the board. Stop giving earnings guidance and start talking about the long view, your growth plan and how investments will pay off. Make sure employees understand and buy into the strategy.
The problem Hutchins identifies is not with the markets, but with management and their lack of the vision thing. There is a difference between setting financial objectives and creating the strategy that leads to growth. Investors will buy into a solid strategy — just ask Amazon, ExxonMobil, drug companies, Apple, and others known for heavy capital expenditures and R&D.
If a company is getting pressure from shareholders they have a communications breakdown or a strategy breakdown. Don’t shoot the messengers, Mr. Hutchins. Oh, and is it surprising that an LBO firm might be making an argument for the benefits of being a private company?
Silver Lake and Mr. Hutchins have been very active on the media front recently. A live interview with Charlie Rose and opinion piece in the FT cover his views on the economy, the deficit, education, innovation, and other macro issues. Is a run for political office in the works? You heard it here first.