"Commentary"-Misguided Guidance
Thursday, June 21, 2007SUSIE GHARIB: In tonight's commentary, saying good riddance to quarterly earnings guidance. Here's Myron Kandel, president of the New Hampshire Initiative for Corporate Responsibility and Investor Protection.
MYRON KANDEL, PRES., NEW HAMPSHIRE INITIATIVE FOR CORPORATE RESPONSIBILITY: Corporate America and Wall Street have both been rightfully criticized for their obsession with short-term results at the expense of a company's long-term growth. Exacerbating this problem has been Wall Street's insistence -- and the corporate world's acquiescence -- on providing analysts and money managers with guidance on what a company's quarterly earnings are likely to be.
Missing such a figure by as little as a penny or two per share can often send a stock plunging. So executives are pressured to meet those short-term projections even if their actions are not in the company's best interests. And who benefits? No long-term holders of the stock, but traders in for a quick profit and executives who cash in on those results. But now a real movement to deal with these and other corporate problems has arisen, with the surprisingly diverse support of big business, big labor, giant pension funds and big-shot lawyers and accountants.
Under the aegis of the Aspen Institute, this group has issued a set of principles urging companies to do away with quarterly earnings guidance, to tie executive compensation to long-term growth and to force executives who benefited from performance targets that were later restated to give back their ill-gotten gains. Good work, you people. Now let's see if the Aspen Group's members can translate their recommendations into real results. I'm Myron Kandel.
