Eliminating Quarterly Earnings Guidance

It is good to see more people understand the bad practice of excessive short term focus on quarterly profits. It is also a bit amusing to see the Chamber of Commerce pushing an idea Deming was called unrealistic for pushing.

The right way to handle a surprise:

The U.S. Chamber of Commerce is calling for companies to halt “earnings guidance,” or coaching analysts, toward a precise target for quarterly profit. “The incentive to meet that number is an incentive to manipulate,” says Robert Pozen, head of the MFS mutual funds. The negative surprise comes in the end: Remember Enron.

Roughly a quarter of the companies in the S&P 500 have stopped giving guidance (or never started), including Berkshire Hathaway, Coca-Cola and Google. Check the investor-relations area of a company’s web site to see whether it plays what David Hirschmann of the Chamber of Commerce calls the “fool’s game” of earnings guidance.

Related: Management: Geeks and DemingDeming’s Seven Deadly Diseases of Western ManagementGoodbye Quarterly Targets?Distort the System

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