Earnings guidance: the real issue; The current debate focuses on the wrong question.

• Author: Silvers, Sam
• Position: COMPETITIVE EDGE

THERE IS A long-running argument about whether or not companies should provide earnings guidance. The media has produced an endless string of articles and opinion columns. Academics have churned out study after study. And corporate executives have debated the issue until they were blue in the face. But in our view, all of these arguments focus on the wrong question.

The real issue is how to get analysts and investors to see your future prospects the same way you do--to believe in your company's "story." In this broader context, quarterly earnings projections are little more than a footnote.

Yet companies around the world continue to waste countless man-hours agonizing over their earnings numbers as if they are all that matters. Sure, earnings are important. But they are only part of the story (and not necessarily the most compelling part). In many cases, companies might be better off with a more balanced approach that doesn't revolve entirely around earnings per share.

In recent years, there has been a slow but steady trend away from giving earnings guidance. Deloitte recently conducted research to see how some of the world's most profitable companies provide market guidance without relying solely on projecting earnings per share. The study revealed three additional angles a company might choose to highlight when telling its story:

* Strategic Initiatives. A number of these companies tell their story by focusing on their overall strategy and the key initiatives that support it, which helps them gain the market's confidence. If investors and analysts find the story and strategy compelling, management can provide guidance simply by showing that the strategic initiatives are on track. A number of leading financial institutions use this as their primary approach to guidance. One insurer even goes so far as to produce a separate supplemental disclosure that describes the progress the company is making against its strategic initiatives.

* "Big Picture" Trends. Other companies tell their story by linking the company's prospects to larger trends such as macro-economic factors and demographic shifts. If analysts and investors buy into the company's overall strategy--and how it relates to the larger trends--they are likely to remain on board as long as the trends continue to unfold as expected. A leading Internet company relies...