VideoMedtronic weaned itself off guidance because the medical device maker didn't think that predicting results in a volatile market — and suffering the consequences of being wrong — was productive. "But old habits are hard to break," noted Tefft, who said that while the investment community understood the company's rationale, executives internally continue to refer to guidance projections as part of performance measures.
Two years after exorcizing guidance, Medtronic management is now fully focused on driving long-term progress, such as annual goals, added Tefft. "It was very positive to take something else off the table," he commented, referring to "the obsessive focus on earnings." Medtronic still has quarterly and annual goals, but those goals are no longer linked to analysts, added the controller.
The guidance issue is different for Ferro, said Bailey, because the company has to attract both sell-side and buy-side analysts. "We have to think about the benefits we receive by providing estimates," said the CFO.
Changing subjects, Bailey said she was "pleased" about the new auditing standard known as AS5, mainly because it dropped the number of internal controls an auditor must test from about 600 to 150. She admits that there is more potential risk in focusing on a smaller group of controls, but she doesn't mind the extra scrutiny. The "big problem" with AS5 for smaller companies is that often it is unclear whether the staff has provided enough documentation to enable the auditor to sign off on the results, adds Bailey.
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