ALEXANDRIA, VA – The National Investor Relations Institute (NIRI) today announced an updated policy on earnings guidance and long-termism.

The new NIRI policy statement, which is an update of NIRI’s 2008 policy on this topic, was developed by a working group of NIRI’s Board of Directors who convened in the first quarter of 2018. The group considered input from NIRI members and consideration of the views of investors, asset managers, senior corporate management, and other stakeholders. 

NIRI believes that an undue focus on short-term, single-point guidance is undesirable and that all relevant audiences – primarily investors, financial analysts, and the news media – are better served when public companies focus their guidance on their long-term strategy and business value drivers. If a company chooses to communicate guidance, NIRI recommends that it provide long-term guidance (i.e., one year or longer) on a consistent set of financial and non-financial metrics that, together, constitute the key long-term value drivers of its business. At the same time, NIRI acknowledges that there will be circumstances when a company may need to furnish short-term guidance, for example, to address seasonality or an unexpected market development, or to be consistent with the practices of industry peers.

NIRI President and CEO Gary A. LaBranche, FASAE, CAE, said, “NIRI’s new guidance policy will encourage greater consideration of a company’s long-term strategy and increase shareholder value.”

In updating this policy, NIRI recognizes that providing quarterly financial guidance has become less prevalent over the past decade as more companies have shifted to guidance on long-term strategy and value drivers. According to NIRI’s Earnings Process Practices Research Report (2016), 67 percent of survey respondents said they provide guidance that extends across an annual time span, only 29 percent furnished quarterly EPS estimates, and 20 percent provided long-term (greater than one year) EPS estimates.

In addition, there have been growing demands by investors and other stakeholders that companies release more information on their long-term business strategies. FCLT Global, an advocacy group whose members include asset managers, has urged companies to abandon quarterly earnings guidance, calling it a “relic of the past. More recently, the Business Roundtable has urged an end to quarterly guidance, warning that it “can incentivize undue focus on short-term profits, at the expense of long-term strategic investments, ultimately to the detriment of companies and their shareholders.”