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June 22, 2007
Pushing for long term investing
Here is a news item you may have overlooked, but that has great significance for the future of the I-Cubed Economy -- Audit Group Endorses Ending Quarterly Earnings Guidance - WSJ.com
The Center for Audit Quality, a Washington, D.C., nonprofit affiliated with the American Institute of Certified Public Accountants, announced its support Monday for guidelines requiring companies to stop providing quarterly earnings guidance to analysts and to tie executive compensation to long-term corporate growth.
The guidelines, known as the Aspen Principles, aim to end short-term focus on business performance in favor of long-term results. Firms that adhere to them won't give quarterly earnings guidance to analysts or comment on analysts' estimates for quarterly results. Such companies also require senior executives to hold stock they receive after leaving the firm, and bar them from hedging the risk of long-term stock option grants, tying the executives' fortunes to the long-term health of the firm. Additionally, the principles call for "clawbacks" that allow firms to recover performance-based executive awards when results are reduced or erased later by financial restatements.
It is not just the Center for Audit Quality who has signed on to the Aspen Principles, but a coalition of groups (see press release) (See also the Center's press release). The report - Long-Term Value Creation: Guiding Principles For Corporations And Investors outlines three areas of action:
• Define metrics of long-term value creation
• Focus corporate-investor communication around long-term metrics
• Align company and investor compensation policies with long-term metrics
While the report does not speak specifically to intangibles, the focus on long-term performance measure rather than short term financial results is exactly what is needed to better develop and utilize intangibles assets. Our earlier working paper, Reporting Intangibles, noted that increased disclosure of performance measures is sorely needed -- and must be used as a management tool tied into management’s financial rewards and management accountability. The adoption of the Aspen Principles is a step in that direction.
Posted by Ken Jarboe at June 22, 2007 08:18 AM
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