When it's new to you, some of the ways accounting affects companies such as Autodesk can be difficult to comprehend. However, it's essential for understanding the situation we're in.
Management strives, quarter by quarter, to meet the sales and earnings expectations of the Wall Street analysts and to avoid erosion in the margin which would be seen (rightly) as an early warning, presaging problems in the company. In the absence of other priorities this is foremost, as the consequences of a stumble can be dire. Remember when Autodesk's stock lost 25% of its value in a single day last January not because the company lost money or because sales fell, but simply because they didn't go up as expected? Just imagine what it's like when things get really bad. Or better, don't try to imagine; you probably can't.
But management has a more serious responsibility to the shareholders; to provide for the future of the company and its products. Focusing exclusively on this quarter's or this year's margins to the extent that industry averages dictate departmental budgets for our company is confusing the scoreboard with the game. We've seen how management strives to deliver numbers each quarter that fall close to the expected results. But management is required to protect the future of the company. When these two priorities conflict, it is time for management to make those difficult choices they frequently speak of, and do what is best for the company, not to behave as if their freedom of action were constrained by numbers cranked out by somebody in an office overlooking Wall Street.
Again, it comes down to the need for management to act when necessary, using the enormous resources at their command, summoning the courage to take the heat, if necessary, for adverse short term consequences that serve the longer term interest of the company.
Editor: John Walker