Business panel urges shift to annual guidance

By Dominic Jones

A US Chamber of Commerce-sponsored panel wants companies to stop providing precise quarterly EPS guidance and move to annual ranges while communicating longer-term business strategies.

In their 179-page report, the Commission on the Regulation of U.S. Capital Markets in the 21st Century says single-figure quarterly EPS guidance creates so much pressure on executives to hit their numbers that it “can be overwhelming” for executives.

The panel, one of two reporting this week in what the Washington Post calls a “major anti-regulatory offensive” by big business, blames quarterly guidance for creating “adverse incentives to forgo value-added investments in long-term projects.”

It urges companies to provide more information on their longer-term strategies, shift to annual guidance that gives a range of EPS targets and update this guidance quarterly if there are material changes.

The panel also identifies that there is a disincentive for companies to give up quarterly guidance. This is because The Street views companies that end guidance in a negative light since many that stop giving guidance do so after missing their targets.

The panel seems to be saying that if all companies just stop providing quarterly guidance then investors won’t react negatively, or if they do then everyone will be impacted equally.

Another side to the story

Of course, there is another side to the story. Management teams that are able to provide reliable quarterly guidance have no incentive to give up the practice when it increases their credibility and lowers their cost of capital.

It’s only those who can’t forecast their short-term performance accurately who have an incentive to end quarterly guidance. But if they can’t see into the next three months, how will they see into the coming year?

Then in the same report, the panel wants the SEC to have the power to exclude some companies from the Sarbanes-Oxley laws, and it wants government to force companies with 21 or more employees to set up payroll savings plans that will give corporations a more slushy pool of capital to draw from.

It all leads to a kind of loosey-goosey picture of corporate executives saying “don’t hold me accountable, but give me more capital and pay me the big bucks.”  I seriously doubt U.S. investors and analysts have an appetite for it.

End quarterly guidance? Sure, OK, but you go first…

You can get the panel’s full report here: ttp://www.uschamber.com/publications/reports/0703…

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