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example, frequently causes management teams to endure the painful experi-
ence of missing quarterly forecasts. That, in turn, can be a powerful incentive 
for management to focus excessive attention on the short term, at the expense 
of longer-term investments, and to manage earnings inappropriately from 
quarter to quarter to create the illusion of stability. Moreover, our research 
with intrinsic investors indicates that they realize that earnings are inherently 
unpredictable. Consequently, they prefer that companies not issue quarterly 
EPS guidance. Only 20 percent of intrinsic investors surveyed by McKinsey 
and the Aspen Institute said they would see a company’s announced intention 
to discontinue earnings guidance one year from the announcement as a “yel-
low flag.”13 In a survey by the Rivel Research Group’s Intelligence Council, 
just 7 percent of investors said that they want companies to offer guidance on 
any metrics at all (financial and operational) for periods less than one year.14
An Alternative to Earnings Guidance
As an alternative, we believe executives will gain advantages from providing 
guidance on the real short-, medium-, and long-term value drivers of their 
businesses, providing ranges rather than point estimates. For example, some 
companies provide target ranges for returns on capital. Other companies pro-
vide a range of possibilities for revenue growth under a variety of assump-
tions about inflation, and they discuss the growth of individual business units 
when that matters. Some companies also provide information on value driv-
ers that can help investors assess the sustainability of growth. Humana, for 
example, provides guidance on estimated membership in its health plans, in-
cluding plans whose membership the company expects will decline.
The value drivers a business chooses to publicize will depend on the 
unique characteristics of the business. For example, a leading project-based 
company provides details on the performance of individual current projects, 
plus the timing and expected returns of potential projects. One European com-
pany provides investors with a tax estimation tool, which uses the investors’ 
assessments of regional growth rates to provide a best guess on the tax rates 
the company will face.
Ideally, a company would provide the kind of information that would help 
investors make their own projections of the company’s performance based on 
their assessment of external factors. For example, in resource industries, prices 
are volatile for extracted commodities such as gold, copper, or oil. For such 
companies, a management team’s view on future prices is not necessarily bet-
ter than that of their investors. Investors would therefore find production tar-
gets more useful than revenue targets in these industries. Similarly, exchange 
13 Darr and Koller, “How to Build an Alliance.”
14 “Evolving Guidance Preferences: Attitudes and Practices of the Global Buy Side,” Intelligence Coun-
cil, Rivel Research Group, September 2017.