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Will the Brain Survive?

The CEO of the U.S. Chamber of Commerce has fired the opening shot in a campaign to address the short-term focus at publicly-traded companies.  The Post reports:

NEW YORK Nov. 30 — U.S. Chamber of Commerce president and chief executive Thomas J. Donohue on Wednesday called on all publicly traded companies to stop offering quarterly earnings guidance, saying such predictions create a damaging focus on "meaningless short-term performance" and undermine a company’s ability to manage for the long term.

"Earnings projections are a fool’s game for management," Donohue said at a conference organized by the Wall Street Analyst forum. "Companies want to project numbers that will please Wall Street, their shareholders, and all of the bloggers and talking heads on cable TV.

"All company executives, especially those of large public companies, should follow the lead of others who have stopped issuing earnings guidance. Short of that, companies should never offer a single figure instead of a wide range."

Donohue gets points for mentioning bloggers, but he errs badly by offering the “wide range” option.  This preemptive compromise sends confusing signals, and costs his initiative early momentum.  Save the consensus-building for later — people will still think you’re reasonable.

The wide range suggestion also raises the prospect of turning CEOs into obfuscating Fed-speakers.  Will industry analysts covering 14-15 companies become Fed-watchers and armchair psychologists?  And won’t managing earnings to the penny adapt?  The idea of a CEO giving a range of “$0.93 and $1.75” to signal $1.34 would be great fun for commentators.

Whether or not he succeeds, I hope Donohue has an echo effect.  Conservatives need someone to say “polling is a fool’s game and soccer moms should follow the lead of others and start using caller ID.  Short of that, they should offer a range of opinion.”

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Written By

Mr. Moffat is a freelance writer in Bethesda, Md.

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