By Blake Baron & David Gordon
Last week, the President said that in his discussions with the business community on ways to improve the business ecosystem, one particular idea was raised as a means to bolster business: move to a six-month financial reporting calendar from the current quarterly one.
Now, there is an argument to be made for such a move. One could say this would help deter “short-termism,” seeing as how companies would no longer need to focus on meeting analyst expectations on a quarterly basis at the expense of longer term thinking (not to mention this would save businesses time and money). In addition, some executives view quarterly reporting as one of the hindrances to going public and/or maintaining public company status and, as a result, have already been advocating for changes to be made to the current reporting schedule.
But, one could also argue that shareholders need more disclosure from the companies they invest in – not less. And it’s important to acknowledge that such a change would not actually guarantee any deterrence from short-termism. If anything, one might wonder if a six-month cycle could lead to increased volatility between shareholders and managers, given less accessibility to pertinent company information. From an investor standpoint, it’s hard to argue that less information is ever better or more convenient, or reassuring, than more information or current information.
The idea of a reporting calendar change was first raised during a meeting with a group of business executives. Indra Nooyi, the Chief Executive Officer of PepsiCo Inc., had apparently brought up the idea of “making the U.S. reporting system more like Europe’s, in which companies are required to report some financial information only twice a year.” Nooyi argued that the pressures of meeting shorter-term goals hinders the longer-term objectives.
In response to this idea and the President’s subsequent comments, SEC Chairman Jay Clayton issued the following statement:
“The President has highlighted a key consideration for American companies and, importantly, American investors and their families—encouraging long-term investment in our country. Many investors and market participants share this perspective on the importance of long-term investing. Recently, the SEC has implemented—and continues to consider—a variety of regulatory changes that encourage long-term capital formation while preserving and, in many instances, enhancing key investor protections. In addition, the SEC’s Division of Corporation Finance continues to study public company reporting requirements, including the frequency of reporting. As always, the SEC welcomes input from companies, investors, and other market participants as our staff considers these important matters.”
The SEC later announced it had voted to adopt a final version of the “Disclosure Update and Simplification release.” These amendments eliminate certain overlapping or outdated disclosures, originally proposed in 2016.
There’s no question that opinions are mixed on potentially changing the reporting calendar. Some business executives have already advocated for moving away from quarterly guidance while others have reiterated their support for it. It’s impossible to tell at this time whether this significant change will actually come to pass – and if it does, when. The current system is so well-established that any process leading to change would certainly first have to consist of careful consideration, and thorough discussion. In a time where technological disruption is at an all-time high and information is more readily available than ever before, one wonders where there’s room to make it less accessible than it’s been for decades.