The Financial Times has a story about how CEOs and CFOs feel about providing the financial markets and investors with guidance regarding a publicly-listed company’s future earnings.
The issue of how best to share critical information with the public is such a hot potato, the FT says, that few corporate officers, auditors and investor relations professionals are prepared to go on the record with their views:
[…] The fear and confusion surrounding earnings predictions speaks volumes about a corporate climate that is full of uncertainty. Haunting every decision about what the market needs to know is Sarbanes-Oxley, the legislation that makes chief executives and chief financial officers personally accountable for the veracity of financial statements.
Then there is the Securities and Exchange Commission’s Regulation FD (for “fair disclosure”), which states that companies cannot share “material news” selectively – that is, with a small group of analysts or institutional investors. Yet the pressure to deliver smooth earnings, and to minimise stock-price volatility, has not diminished.
Two recent studies suggest that, due to nervousness over compliance, more companies are backing off from giving any guidance at all, or are giving it less frequently. In an annual survey of finance executives at big US corporations by Greenwich Associates, 55 per cent of the 385 respondents said they had issued some form of earnings guidance during 2004, down from 72 per cent in 2003. And when the [US] National Investor Relations Institute questioned 527 of its corporate members on their guidance practices, two results jumped out. The number of companies providing only annualised guidance nearly doubled, from 16 per cent in 2003 to 28 per cent last year. Those giving quarterly guidance (either exclusively or in addition to annual estimates) fell sharply, from 75 per cent to 61 per cent.
“Everybody’s afraid,” says Frank Redican, a veteran of brokerage house Josephthal Co. in New York who now runs his own investment firm. “Sarbanes-Oxley changed something, but I’m not sure what.”
Financial Times | Chief executives can’t win at the numbers game (paid sub required)
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