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Group of CEOs sees realistic public reporting as integral part of good corporate governance

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02 Aug 2016

A group of CEOs has issued a set of commonsense corporate governance principles for public companies, boards of directors, and shareholders. The principles are intended to provide a basic framework for sound, long-term-oriented governance. Among the topics discussed is also public reporting with a focus on earnings guidance and non-GAAP measures.

The principles state that a company should take a long-term strategic view and explain clearly to shareholders how material decisions and actions are consistent with that view. Required quarterly reporting should reflect this view and provide an outlook for trends and metrics that reflect progress on long-term goals. The principles note that making short-term decisions to beat guidance is "likely to be value destructive in the long run".

According to the priciples, companies should not feel obligated to provide earnings guidance, but if they decide to so so, they should first determine whether it “does more harm than good”. Also, the guidance “should be realistic and avoid inflated projections”.

Finally, the priciples stress that companies are required to report their results in accordance with Generally Accepted Accounting Principles (GAAP). While the group of CEOs believes that "it is acceptable in certain instances to use non-GAAP measures to explain and clarify results for shareholders" they also stress that "such measures should be sensible and should not be used to obscure GAAP results". They also stress that all compensation expenses, including equity compensation, should be reflected in any non-GAAP measures of earnings as they are plainly a cost of doing business.

For more information, see the press release and principles on the website especially set up for this purpose.

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