Whether in business, investing, or just ordinary life, it’s a good idea to reexamine your assumptions and guiding principles from time to time. You may find that some are no longer valid, and in fact are doing more harm than good.
It’s in this spirit that we offer the two feature stories, or “Great Debates,” in this month’s issue. The first, “Letting Go of Guidance,” asks whether the quarterly ritual of providing earnings guidance is worth the time and effort. For many CFOs the answer is still yes, but others now prefer to give annual guidance, or some kind of nonfinancial guidance, as contributing editor Russ Banham found. Not unreasonably, many companies want investors to take a longer view of their performance and prospects than a single quarter.
Our second Great Debate, “Whose Company Is It?,” asks whether maximizing short-term shareholder value should be the primary, if not the sole, purpose of a public company. No doubt for many people this debate has already been settled in favor of the affirmative, but some academics, and CFOs, maintain that hewing narrowly to shareholder value can undermine long-term viability and value. A new book by Cornell Law School professor Lynn Stout, called The Shareholder Value Myth, attacks the notion of “shareholder primacy”; it provides the occasion for Banham to take a look at both sides of the argument.
Of course, shareholder value is never going to be far from the thoughts of any public-company CFO. For example, the metric of total shareholder return drives decision making at apparel giant VF Corp., where finance chief Robert Shearer has presided over a series of acquisitions that have steadily boosted the company’s sales, stock price, and TSR to new heights. But a secret of VF’s success is that it, too, questions assumptions, never taking for granted that what makes a brand successful in one country will work in another. That’s why in China, the company sends researchers literally into consumers’ closets, as Shearer relates in “Brand Power.”