With the aid of the Aspen Institute, a number of large corporations and unions are trying to get big American companies to kill the institution of issuing quarterly guidance. Backers of the initiative include Pfizer (PFE), Xerox (XRX) and the AFL-CIO. The proposal also suggests that management compensation be focused on long-term goals and not quarterly results. Of course, the companies mentioned as supporting the proposal have not done all that well in recent years.
For some odd reasons, the group thinks that the move will keep hedge-funds and short-term investors from taking large positions in public companies.
According to FT.com: "Hedge funds and other short-term investors tend to like guidance because the discrepancies between actual and forecast earnings offers them lucrative trading opportunities." But, that would be to assume that hedge funds do not have access to other data on company performance. It also would have to be based on the belief that Wall St. research operations would halt the practice of issuing their own guidance for corporate earnings. Without this kind of work, research businesses would certainly lose much of their value to investors.
The proposal is naive for another reason. Forecasts from large investment houses, buy-side analysts, and research firms area often as accurate, if not more accurate, than forecasts from the companies themselves.
The Aspen Institute and friends are simply wasting time. They don’t have much of a bully pulpit.
Douglas A. McIntyre can be reached at [email protected] He does not own securities in companies that he writes about.
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