For Subscribers

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.

Continue reading this article — and all of our other premium content with Entrepreneur+

For just $5, you can get unlimited access to all Entrepreneur’s premium content. You’ll find:

  • Digestible insight on how to be a better entrepreneur and leader
  • Lessons for starting and growing a business from our expert network of CEOs and founders
  • Meaningful content to help you make sharper decisions
  • Business and life hacks to help you stay ahead of the curve

Related Topics

Editor's Pick

Have More Responsibilities at Work, But No Pay Bump? Use This Script to Get the Raise You Deserve.
Black and Asian Founders Face Opposition at All Levels — Here's Why That Has to Change
Business News

'This Made Me Physically Recoil From My Phone': Lingerie Brand Apologizes For 'Creepy' Ad Referencing Ryan Reynolds and Bras

Online lingerie retailer Harper Wilde is under fire for a bizarre sponsored post it has since pulled from Instagram.

Business News

Frontier Airlines Just Announced Its All-You-Can-Fly Summer Pass for $399. What's the Catch?

As travel begins to pick up, the airline hopes unlimited travel will jumpstart its business.

Business News

The Scam Artist Who Robbed Backstreet Boys and NSYNC Blind. 'Some of the Guys Couldn't Pay Their Car Payment.'

In the 1990s, Lou Pearlman made millions creating the Backstreet Boys and NSYNC. It was all a giant Ponzi scheme.

Living

Invest in Yourself: 10 Things Every Working Woman Should Do This Year

When striving for success, it is easy to forget about your mental and physical health. But without health, you cannot fully succeed. Follow these ten lifestyle strategies for success in your personal and professional life.