Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, February 22, 2007

Earnings guidance – the latest thinking from US companies

Every now and again, you get to work with some outstanding people. The Disclosure Advisory Board – on which I sit – is one such occasion. Membership comprises a group of thoroughly experienced and wise investor relations professionals, who have just released a white paper entitled “Guiding Investors & Analysts: How Much Information is Enough?”. The paper, discussing best practices in analyst guidance, comes at an interesting time. As the US Senate and the financial services industry as a whole, considers the implications of making New York once again a financial hub, new practices – and regulations – will emerge.

The Disclosure Advisory Board has examined how issuers should “guide” the market and their recommendations include:

• All companies – large and small - should issue regular guidance. However, guidance is not an all or nothing proposition. One size of guidance does not fit all.
• Guidance should provide clear, consistent communication about an entire business. It should take into account qualitative and quantitative measures and be comprised of both company-specific and industry-specific information.
• Concerns that guidance overemphasizes short-term performance are overblown. The benefits of guidance far out-weigh the perceived risks.
• As financial markets around the world converge, and more companies contemplate listings outside the U.S., robust guidance will provide investors with comparable information with which to evaluate issuers. U.S. companies wishing to compete for global capital may need to consider disclosure that will put them on par with companies based elsewhere.
• The decline in sell-side coverage is creating an opportunity for greater communication from public companies. According to a survey by the National Investor Relations Institute, approximately 35% of NYSE and NASDAQ companies have no analyst coverage.
• Fuller disclosure can combat unwanted hedge fund interest. Companies with concerns about the potential volatility that hedge funds can create may be able to forestall hedge fund behavior with better guidance.
• Appropriate guidance enables companies to benefit from fairer valuations and lower capital costs.
• Over time, good disclosure will bring integrity back to the market.

The Disclosure Advisory Board – learn more at - would love to get any feedback you have on these issues.


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