Investor Relations

IMPLEMENTING BEST PRACTICES IN INVESTOR RELATIONS 111Financial markets and listed companies do not trade in the same timehorizon, and it is truly difficult to reconcile them. It is always in the company’sinterest to align the targets it makes public with its managementmethods: For instance, firms that have five-year strategic plans should providean outlook for that period.On the contrary, if a company is going through difficult period, shorttermnews flow will be critical.There are proven advantages to giving targets for the medium and longterms.There is less risk of repeated changes to the said targets over the period,meaning thatthe consensus is more manageable;the share price is less volatile.The stock is more attractive to long-term investors. University researchtends to show that companies that provide objectives for longer periodshave a better chance of attracting long-term investors.The targets are more consistent with the company’s business model.It is easier to reconcile internal objectives and external guidance.Companies that use longer time horizons for their strategic objectives canblend qualitative and quantitative targets, applying the former to the yearunderway and factoring them into the medium-term outlook. For example,they might say, “Operating margin should continue to expand at the samepace as last year. Management is reiterating its target of achieving a 10%operating margin by the end of its five-year strategic plan.”Research has shown, notably in the United States, that there is no negativeimpact on the valuation of companies that stop or fail to provide guidance forthe following quarter and focus instead on the full year or a longer period.3.5.3.4 Updated outlookCompanies may have to revise their targets upward or downward to takeinto account the results they effectively report and/or a change in the underlyingassumptions they made when they first gave guidance.From a legal standpoint, such revisions constitute price-sensitive, insiderinformation that must be made public via a press release, usually the one issuedto report earnings. Yet particularly in the United States, the forward-looking