The WSJ Got Quarterly Reporting Wrong: A Corporate Executive's Response

James Mackintosh's recent Wall Street Journal piece defending quarterly earnings reporting reads like a textbook example of why academic analysis often misses the mark when it comes to understanding corporate behavior. As someone who lived this reality for years as Chief Technology Officer at Hewlett-Packard—the world's largest technology company at the time by revenue with massive R&D investments—I can tell you the quarterly reporting system creates perverse incentives that systematically undermine long-term innovation.

Mackintosh's central argument rests on flawed premises and cherry-picked data that ignore the lived experience of corporate executives who actually make investment decisions under quarterly pressure. His dismissal misses a critical opportunity to address one of America's most significant competitive disadvantages.

The Reality of Quarterly Pressure

Let me share what quarterly reporting actually looks like from the inside. During my tenure as CTO at HP, I experienced how quarterly pressure created systematic patterns across the industry where R&D would be paused, or delayed during quarter-end periods. This became a predictable cycle that repeated quarter after quarter.

This behavior wasn’t unique to HP. It's the inevitable result of a system that rewards short-term financial engineering over patient capital investment. When your stock price can swing dramatically based on missing earnings by a few cents per share, the rational response is to optimize for quarterly performance, even at the expense of long-term competitiveness.

The academic research Mackintosh cites, including MIT's Robert Pozen's study of UK reporting changes, fundamentally misunderstands how corporate behavior evolves. These researchers have never sat in a boardroom where directors debate whether to continue funding a multi-year innovation project that won't generate revenue for 36 months while facing pressure to meet next quarter's numbers. They've never experienced the intense scrutiny from analysts who penalize any hint of reduced short-term profitability.

The Dell Example: When Private Markets Prove the Point

Through my relationship with Alex Mandl—my former boss at Teligent who led the board negotiations to take Dell private—I witnessed the most compelling modern example. Michael Dell and Silver Lake paid $24.9 billion for one thing—freedom from the quarterly earnings pressure that was killing Dell Technologies long-term potential. Dell explicitly stated the goal was "no more pulling R&D and growth investments to make in-quarter numbers." R&D spending increased from $1.1 billion to $4.4 billion, transforming Dell from declining PC manufacturer to enterprise solutions leader. The result: an estimated $70 billion return by 2023.

This wasn't theoretical—it was a $25 billion bet that quarterly reporting pressure was destroying long-term value. And they were proven spectacularly right.

The False Comparison Problem

Mackintosh's reliance on the UK's 2014 experience with optional quarterly reporting reveals a critical flaw in his reasoning. He argues that because UK companies didn't dramatically change their investment behavior after switching to semi-annual reporting, quarterly reporting must not be problematic. This ignores a fundamental truth: we've trained an entire generation of CEOs, CFOs, and board members to think in 90-day cycles.

You don't undo decades of conditioning overnight. When business schools teach earnings management, when compensation systems reward quarterly performance, and when analysts' careers depend on predicting short-term results, making reporting optional doesn't suddenly transform corporate culture. The UK comparison is meaningless without addressing the broader ecosystem that reinforces short-term thinking.

The Big Tech Advantage

Mackintosh points to Big Tech's massive AI investments as proof that quarterly reporting doesn't hinder long-term thinking. This argument reveals a profound misunderstanding of competitive dynamics. Companies like Google, Microsoft, and Meta can hide enormous R&D expenditures within their massive profit margins. When you're generating 20-30% operating margins on hundreds of billions in revenue, you can afford to invest $50 billion in speculative technologies while still meeting quarterly expectations.

But what about companies in lower-margin industries? What about manufacturing firms, healthcare companies, or emerging technology businesses that can't disguise innovation investments as easily? The current system creates a two-tier economy where only the most profitable companies can afford to think long-term, while everyone else gets trapped in quarterly optimization cycles.

The Innovation Imperative

America's competitive advantage has always been rooted in our ability to make patient, long-term investments in breakthrough technologies. The semiconductor industry, the internet, biotechnology, and countless other innovations emerged from companies willing to invest for decades before seeing returns. Today's quarterly reporting regime systematically discourages this kind of "patient innovation."

I've written extensively about the concept of the "50-year overnight success"—the reality that truly transformative innovations require sustained investment over multiple decades. Companies need the freedom to pursue breakthrough technologies without explaining every quarter why they're spending money on projects that won't generate revenue for years.

A Better Path Forward

Do I think switching from quarterly to semi-annual reporting solves the problem? No. Six months isn't meaningfully different from three months when it comes to long-term thinking. But we can make meaningful reforms that would help:

First, eliminate forward-looking earnings guidance. This practice forces companies to make public commitments about future performance, creating enormous pressure to meet those predictions regardless of changing circumstances.

Second, create accounting treatments that allow companies to separate long-term innovation investments from operational expenses, giving investors clearer visibility into both current performance and future potential.

Third, develop new metrics and incentives that reward patient capital deployment and long-term value creation, not just quarterly financial performance.

The Real Stakes

This isn't an abstract policy debate—it's about America's economic future. While we optimize for quarterly performance, competitors in China and other nations are making massive, sustained investments in critical technologies. Their state-directed approach has significant flaws, as Mackintosh correctly notes, but at least they're thinking in decade-long time horizons.

We need American companies to have the same freedom to pursue patient innovation without facing quarterly punishment from investors and analysts who fundamentally misunderstand the innovation process.

Academic researchers and financial journalists can theorize all they want about efficient markets and rational behavior. Those of us who've actually run large corporations know better. The quarterly reporting system is broken, and defending it based on theoretical models and incomplete data serves no one except those who profit from short-term volatility.

Next time the Wall Street Journal wants to analyze corporate behavior, perhaps they should talk to someone who's actually lived it. The American economy deserves better than academic theory masquerading as practical wisdom.

The author is the former Chief Technology Officer of Hewlett-Packard and writes about innovation and corporate strategy on Substack.