Skip to content
Subscriber Only

A Wall Street Resolution: Stop Giving Earnings Guidance

A Wall Street Resolution: Stop Giving Earnings Guidance
Photograph by Getty Images

Chief executive officers and directors should make a New Year’s resolution to stop providing earnings guidance, abandoning the practice forever. If they don’t, regulators should resolve to do it for them. Regulators should repeal the safe harbor provision of the Private Securities Litigation Reform Act, which has enabled executives to provide guidance without fear of being sued.

It is possible. On Jan. 1, 2009, Paul Polman took over as CEO of Unilever, then the 60th-largest market-capitalization company in the world, valued at over $100 billion. Polman immediately told the capital markets that Unilever would no longer offer earnings guidance. Angry at his impudence, the market punished Unilever’s stock, driving it down 22 percent over the next few months (outpacing the downward push of FTSE 100, which fell by 16 percent over the period). Then the stock rebounded. By late 2012, its price was over 50 percent above Polman’s starting price (a period in which the FTSE 100 had risen about 30 percent).