Standards

Call to end quarterly guidance

An increasingly short-term focus by many US companies is damaging their ability to sustain long-term performance, according to a report by the Committee for Economic Development (CED), a policy group chaired by William Donaldson, former Securities and Exchange Commission chairman.

The CED has made a number of recommendations, including that directors act to eliminate quarterly guidance on earnings per share.

Among the factors the report identifies as contributing to short-termism are an emphasis on quarterly earnings, compensation being tied to earnings per share and shortened chief executive tenures.

The CED is also calling on directors to structure incentive plans so that a significant proportion of senior executive income is tied to the achievement of long-term performance targets, and have corporate reporting redesigned to include non-financial indicators of value.

July 2007