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For the referenced "Principles" developed by the Aspen Institute, see


Financial Times, June 18, 2007 article



Call for end to quarterly guidance

By Francesco Guerrera in New York
Published: June 17 2007 22:10 | Last updated: June 17 2007 22:10

An unprecedented coalition of large companies, pension funds, and trade unions will on Monday urge corporate America to scrap quarterly earnings guidance in an attempt to curtail the influence of hedge funds and other short-term investors.

The move, backed by leading corporate figures such as Jeff Kindler, chief executive of Pfizer, and Anne Mulcahy, his counterpart at Xerox, will increase pressure on companies and fund managers to focus on long-term objectives rather than short-term fixes.

The broad-based coalition, whose participants range from the Business Roundtable, which represents 160 leading US chief executives, to the AFL-CIO, the largest union federation, will also call for an overhaul in compensation practices to reward corporate and fund managers for long-term performance.

Monday’s publication of the new set of corporate principles – masterminded by the Aspen Institute, an influential not-for-profit group – underlines corporate America’s fear that the focus on quarterly results is hampering US companies’ long-term prospects and the country’s economic competitiveness.

“The signing of the Aspen principles by such a diverse group is a milestone in business history,” said Ms Mulcahy. “What is especially significant is the focus on long-term value and opening lines of communication with shareholders.”

The principles, which were also backed by PepsiCo, the Council of Institutional Investors and the five biggest audit firms, call on companies to “avoid both the provision of, and response to, estimates of quarterly earnings and other overly short-term financial targets”.

Instead, companies should talk to shareholders about their business strategy and their outlook over a number of years, according to the document, which has been seen by the Financial Times.

More than half of US companies offer quarterly earnings guidance and the percentage is higher among larger groups.

In private, many US chief executives say they have to provide their own quarterly earnings forecasts because analysts and investors demand them. Some express the fear that ending the practice would hit their companies’ share prices or that analysts would put out inaccurate forecasts.

Hedge funds and other short-term investors tend to like guidance because the discrepancies between actual and forecast earnings offers them lucrative trading opportunities.

However, corporate leaders and academics argue that the pressure to meet quarterly forecasts prompts companies to forgo long-term investments such as capital expenditure and research and development.

The principles say companies should look at a five-year horizon and urge both executives and fund managers to tie their compensation to long-term performance targets.




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