Board raises concern about elimination of quarterly guidance and focus on annual EPS range
NEW YORK, March 22 /Xinhua-PRNewswire/ -- PR Newswire's Disclosure Advisory Board, a 15-person council of leaders in the corporate, regulatory, investor, reporting and academic communities, expressed concern that recommendations about earnings guidance by the U.S. Chamber of Commerce are too narrowly focused.
(Photo: http://www.newscom.com/cgi-bin/prnh/20070321/NYW025
Logo: http://www.newscom.com/cgi-bin/prnh/20000306/PRNLOGO )
In its report entitled, "Commission on the Regulation of U.S. Capital Markets in the 21st Century - Report and Recommendations," the U.S. Chamber of Commerce calls for eliminating quarterly guidance and relying upon an annual range of projected EPS as the primary means for forecasting performance. The Disclosure Advisory Board believes that these recommendations could stifle transparency, if implemented as a one-size-fits all approach.
While sharing the Chamber's concern about "short-termism" and the false precision of single-point earnings estimates, the Board recommends a more nuanced approach. In the Board's view, companies should consider guidance relating to key qualitative and quantitative company and industry performance measures, with time horizons tailored to their own circumstances and business strategy. An exclusive focus on annual EPS guidance -- even expressed as a range -- would neglect both the market importance of short-term investors and short- and long-term objectives and risks that affect bottom-line results. The Chamber's report acknowledges the growing interest among companies in providing long-term perspectives on business fundamentals. The Board endorses this holistic approach as the proper focus of guidance, but not to the exclusion of potentially significant short-term performance perspectives.
Mark Hynes, managing director of Global Investor Relations Services for
PR Newswire and a member of the Disclosure Advisory Board, responded, "We at the Disclosure Advisory Board welcome the U.S. Chamber of Commerce into the debate on guidance, but we believe that its recommendation that 'all public companies should seriously consider the permanent elimination of quarterly guidance on earnings per share,' goes well beyond what is necessary. By contrast, the proposal that companies should move to 'annual guidance with a range of EPS numbers' does not go far enough.
"As the Disclosure Advisory Board highlighted in its white paper, 'Guiding Investors & Analysts: How Much Information is Enough?' there are common circumstances in which companies should use short-term guidance. For instance, the thirty-five percent of listed companies on the NYSE and NASDAQ that have no analyst coverage are good candidates for using quarterly guidance to meet investor needs.
"On the other hand, the Board takes a much wider view of the need for longer term guidance. Painting a picture through reviews of long-term strategies and goals, industry metrics and trends, acquisitions and innovations provides the tools for investors and analysts to better assess a company. Simply relying on annual EPS as a mark of performance is too narrow. The Board sharply delineates between mere revenue and EPS forecasts and meaningful guidance about business drivers.
"It is also important that the issue of earnings guidance not be viewed in isolation. There is a growing body of surveys and research demonstrating that short-term earnings guidance can lead to management behavior that focuses on meeting short-term earnings goals at the expense of longer-term focus on R&D and other value enhancing goals."
To learn more about the Disclosure Advisory Board and request a copy of the complete white paper, please visit http://disclosureadvisoryboard.mediaroom.com/ . To read Mark Hynes' blog, go to http://transparencymatters.blogspot.com/ .
About the Disclosure Advisory Board
The Disclosure Advisory Board was brought together by PR Newswire in June 2006 to assess and comment upon the state of corporate disclosure and transparency. Comprised of 15 individuals with a combined 450 years of regulatory and compliance experience, the aim of the Board is to debate current disclosure and governance issues, and based on the discussions, propose "best practices" for improved financial and corporate reporting. The Disclosure Advisory Board believes that communication -- disclosure and transparency -- lies at the heart of winning back public consent.
Members of the panel are: John Bierbusse, corporate director and retired equity research analyst at A G Edwards; Janet L. Fisher, partner, Cleary Gottlieb Steen & Hamilton LLP; Valerie Haertel, VP/director of investor relations, Medco Health Solutions, Inc.; Jerry Hostetter, VP/director of public relations and investor relations, Smithfield Foods Inc.; Deborah Kelly, partner, Genesis Inc.; Mark Hynes, managing director of Global Investor Relations Services for PR Newswire; Jack L. Kelly, co-head, industrial research team, Goldman Sachs; Mary Beth Kissane, president and founder, Corporate Perception Research; Sam Levenson, SVP Investor Relations, Sony Corporation of America; William A. Relyea, managing director, H.C. Wainwright & Co., Inc.; Diane Salucci, SVP, Bear Wagner Specialists LLC; Kurt Stocker, member of the board of directors of NYSE Regulation, Inc. and chairman of the New York Stock Exchange Individual Investors Advisory Committee; Anna Sussman, director, Investor Relations and Corporate Communications, Pharmion Corporation; Louis M. Thompson, Jr., partner, Genesis Inc., and managing director, Kalorama Partners, and former CEO, president and board member of the National Investor Relations Institute.
About PR Newswire
PR Newswire Association LLC ( http://www.prnewswire.com ) provides electronic distribution, targeting, measurement and broadcast services on behalf of tens of thousands of corporate, government, association, labor,
non-profit, and other customers worldwide. Using PR Newswire, these organizations reach a variety of critical audiences including the news media, the investment community, government decision-makers, and the general public with their up-to-the-minute, full-text news developments.
Established in 1954, PR Newswire has offices in 11 countries and routinely sends its customers' news to outlets in 135 countries and in more than 40 languages. Utilizing the latest in communications technology, PR Newswire content is considered a mainstay among news reporters, investors and individuals who seek breaking news from the source. PR Newswire's leading services include ProfNet Experts(SM), eWatch(TM), MEDIAtlas(TM), Search Engine Optimization, MediaRoom, MediaSense(TM), MultiVu(TM) and U.S. Newswire, the preeminent policy newswire in the industry. PR Newswire is a subsidiary of United Business Media plc of London.
