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Just Say No?

More big companies are refusing to give Wall Street quarterly earnings guidance. Should small firms jump on the bandwagon, too?

By C.J. Prince

Opinions expressed by Entrepreneur contributors are their own.

It's practically a fad. Big-league companies like Alcoa,AT&T, Mattel, PepsiCo and Sun Microsystems are saying no togiving corporate-earnings guidance, or at least the quarterlyvariety. Only 55 percent of companies gave any guidance at all lastyear, down from 72 percent in 2003, according to a GreenwichAssociates survey of 385 CFOs and other senior-levelexecutives.

That's good news, according to many Wall Street watchers."I see that, and I think, 'Great,'" says HarvardBusiness School professor Michael C. Jensen, who wrote his ownreport on the subject in 2002. He and others contend thatshort-term guidance leads to a short-term mentality, for bothcompanies and their investors. Rather than focus on the underlyingfundamentals, all eyes are fixed on the bottom line, and companiesare under intense pressure to meet it or beat it. If theydon't, they risk the wrath of the market and the immediate lossof shareholder value. That leads management, some say, to makeshort-term decisions that undermine long-term growth, such asholding off on important R&D spending or canceling a marketingcampaign that could generate sales. "Getting caught up in thisquarter-to-quarter earnings management game will only lead to valuedestruction," says Jensen.

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