Several corporations, such as Motorola, Pfizer, Intel and Ford, have stopped doing quarterly predictions. According to the National Investor Relations Institute, just over half of US-listed companies now offer quarterly guidance compared to 75% three years ago. More could now follow the trend with the publication of the latest report in that field by the Business Roundtable Institute for Corporate Ethics.
Anti-guidance supporters argue that rigid quarterly frameworks are completely out of tune with business reality. "No company is going to grow at exactly x percent quarter after quarter," says Steve Rodland, chairman and chief executive of Office Depot. "Life just isn't like that." Worse, short-term targets could force companies to adopt dubious short-cuts to meet investors' expectations.
The pro-guidance camp, however, argues that reporting has given companies an element of discipline and transparency welcomed by investors and analysts. Most appear prepared to work without forecasting if the emphasis was to switch to more long-term business goals. "Most investors want to talk about the business as opposed to asking management whether they are going to make it by a cent," says Jeffrey Diermeier, a former chief investment officer at UBS Global Asset Management and head of the CFA Institute.
The dilemma is, of course, that the system tends to be rigged in favour of medium-term goals rather than long or short-term ones. "We as the American investing public have a short investment horizon," says John Castellani, president of the Business Roundtable. The same goes for America's leaders, where the typical CEO rarely stays on for more than five years.
In Europe the quarterly craze never really caught on, with companies sticking instead to a six-month reporting schedule. Perhaps a middle ground is to be found there.
Source: The wrong focus? How the race to meet targets can throw corporate America off course
Financial Times, July 24 2006
Review by Emilie Filou