4Q 2024: Best Practices for Setting Guidance Amid Regulatory, Tariff, and Geopolitical Volatility

In times of regulatory scrutiny, fluctuating trade policies, and unpredictable geopolitical tensions, setting guidance has become a more complex and strategic focus for public companies. Investors, already grappling with their own uncertainties, expect corporate leadership to provide clarity and direction. Yet, this clarity must be balanced with caution, as overly optimistic projections or failure to anticipate external risks can erode credibility and harm valuations.

Guidance, when done well, establishes a foundation of trust between a company and its stakeholders. It shapes market expectations, informs investment decisions, and reflects management's confidence in the business. But in times of significant external uncertainty, delivering guidance requires a nuanced approach.

1. Emphasize Transparency Over Certainty

Transparency is the cornerstone of effective guidance during volatile times. Investors understand that no company can predict every regulatory shift, tariff change, or geopolitical event. What they demand, however, is a candid acknowledgment of these risks and a detailed explanation of how the company plans to manage them. Companies must strike a balance between providing a realistic outlook and avoiding undue pessimism.

To achieve this, firms should communicate the assumptions underpinning their guidance. For instance, if a forecast is based on the current regulatory framework, the company should state this explicitly while outlining contingency plans should policies shift. Similarly, acknowledging geopolitical tensions without speculating excessively demonstrates a measured approach that prioritizes facts over conjecture. Transparency breeds trust, and trust strengthens investor confidence, even in uncertain times.

2. Leverage Scenario Planning to Support Guidance

Scenario planning has emerged as an essential tool for setting guidance in uncertain environments. Rather than presenting a single-point estimate, leading investor relations thinkers advocate for offering a range of outcomes, supported by clear assumptions for each scenario. This approach not only reduces the risk of missing projections but also highlights management’s adaptability.

For example, a company exposed to tariffs on imported raw materials might provide guidance under three scenarios: no change in tariffs, a moderate increase, and a significant escalation. By walking investors through the financial and operational implications of each scenario, the company can demonstrate preparedness while avoiding the perception of inflexibility. Scenario-based guidance also allows investors to assess the resilience of the business model across a spectrum of potential futures.

3. Align Internal and External Messaging

Setting guidance during times of uncertainty requires alignment between a company’s internal strategic goals and its external messaging. Discrepancies between what a company communicates to the market and what it pursues operationally can undermine credibility and create confusion.

Finance, operations, legal, and strategy teams must work together to ensure that the guidance reflects both an accurate picture of current performance and a realistic assessment of external risks. Internally, this alignment fosters cohesive decision-making. Externally, it reinforces the integrity of the company’s messaging, enabling investors to trust that guidance is not merely aspirational but grounded in robust planning.

4. Incorporate Geopolitical Risk into the Narrative

Geopolitical tensions—whether related to trade wars, conflicts, or shifting alliances—are increasingly affecting global markets. Ignoring these risks in guidance is no longer an option. Instead, companies must integrate geopolitical considerations into their investor narratives, showing that they have thought deeply about their exposure and mitigation strategies.

When addressing geopolitical uncertainty, companies should avoid alarmism while being forthright about potential risks. For example, a multinational firm operating in emerging markets might discuss its diversification strategies to reduce dependence on any single region. Highlighting how geopolitical developments could create opportunities—for instance, access to new markets or favorable regulatory changes—can also position the company as proactive rather than reactive.

By framing geopolitical risk as a manageable variable rather than an existential threat, companies can project confidence without appearing dismissive of external realities.

5. Balance Optimism with Realism

Investors value optimism, but only when it is tempered with realism. Overly bullish guidance in times of uncertainty risks damaging credibility if external factors derail performance. Conversely, excessively conservative guidance can signal a lack of confidence, potentially depressing valuations and creating opportunities for competitors to gain market share.

Ground optimism in a clear rationale. If a company expects to overcome regulatory hurdles or adapt to tariffs with minimal disruption, management should provide tangible examples to support this claim. Whether it’s a cost-cutting initiative, a new supply chain strategy, or a product innovation, investors need to see the mechanics behind the optimism.

Realism, on the other hand, requires acknowledging risks without fixating on them. For example, if a company faces potential regulatory changes, it might discuss ongoing efforts to engage with policymakers, adapt compliance frameworks, and identify alternative revenue streams. By balancing the narrative, companies can project resilience without overpromising.

6. Communicate Contingency Plans Clearly

In uncertain times, investors are particularly interested in how companies plan to respond to unforeseen challenges. Integrate contingency planning into their guidance. Doing so not only reinforces confidence in management’s foresight but also highlights the company’s agility.

For instance, if a new tariff regime disrupts supply chains, what steps will the company take to mitigate the impact? If a regulatory change affects product pricing, how will the company adjust its cost structure? By providing specific examples of contingency measures, companies can assure investors that they are prepared to act decisively under adverse conditions.

7. Adapt Guidance to Reflect Evolving Risks

In periods of rapid change, rigid guidance frameworks can quickly become obsolete. Emphasize the importance of flexibility, advising companies to revisit and revise their guidance as circumstances evolve. While frequent updates can create volatility, strategic updates that reflect meaningful shifts in the operating environment signal to investors that the company is staying ahead of the curve.

For example, if geopolitical tensions ease or a regulatory reform proves less disruptive than anticipated, updating guidance to reflect these improvements demonstrates responsiveness. Conversely, if new challenges emerge, revising guidance proactively rather than waiting until the next earnings call can help manage investor expectations.

8. Focus on Long-Term Fundamentals

Finally, while quarterly or full year guidance is essential, investors also want to understand how companies are positioned for long-term success. Amid regulatory and geopolitical uncertainty, emphasizing the durability of the company’s business model, the strength of its competitive advantages, and its commitment to innovation can help offset short-term concerns.

Integrate long-term narratives into guidance discussions. For example, if a company faces tariff-related headwinds, management might explain how investments in automation will reduce costs over time. Similarly, a firm navigating regulatory uncertainty might highlight its diversified portfolio or strategic acquisitions as sources of future growth. By anchoring guidance in the company’s broader strategic vision, management can reassure investors that temporary disruptions will not derail long-term value creation.