In the 5th Singapore Institute of Directors’ Conference held on 3 September 2014, an opinion poll was conducted among conference delegates on whether quarterly reporting requirement for Singapore listed companies should be abolished – the vote in favour was overwhelming. There were some 650 corporate leaders, directors and professionals attending the conference, and the panellists exchanging views on whether the requirement is a boon or bane included Magnus Bocker (CEO of the Singapore Exchange), JY Pillay (Former Chairman of the Singapore Exchange) and Peter Seah (Chairman of DBS Group Holdings).
Mandatory quarterly financial reporting was introduced in Singapore in 2003 for listed companies with market capitalisation of above S$20 million, which threshold was subsequently raised to S$75 million. When the requirement was revisited in 2006, the Ministry of Finance accepted the recommendation of the Council on Corporate Disclosure and Governance to retain the status quo – other than companies with smaller market capitalisation, all listed companies need to comply with the 45-day reporting deadline for quarterly results and 60-days for annual results.
It is interesting to note that companies listed on the London Stock Exchange could be freed from quarterly reporting by 2015, once the latest European Union (EU) transparency directive for the abolishment of mandatory quarterly reports is transposed into national law. The UK government has already indicated that, following recommendations in the Kay Review, it is in favour of abolishing interim management statements.
The new EU directive was nothing short of a spectacular swing of the pendulum from what the European Commission (EC) had originally intended. More than a decade ago, the EC had planned to introduce mandatory quarterly financial reporting in accordance with International Accounting Standard 34 for all listed companies, but following strong opposition from several member states, it subsequently settled for requiring only the publication of quarterly interim management statements, which was criticised by regulators, practitioners and audit firms alike for lacking directions on specific content requirements and thus contributed little to harmonise reporting regulation across the EU. Some companies produced detailed financial figures whilst others merely gave bland reports as a result of management not wishing to or not being able to produce any better information than at the full-year or half-yearly results period. The pendulum now rests where quarterly reporting is to be removed altogether across the EU.
As for Hong Kong, it is striking that quarterly reporting is not mandatory for its Mainboard companies notwithstanding the increasing cross border capital flows with the Mainland and the number of companies that are dual-listed in Hong Kong and the Mainland, which stands at odds with the practice in the Mainland. Currently, only companies listed on the Growth Enterprise Market (GEM) are required to prepare quarterly reports and the last two attempts by the Hong Kong Stock Exchange, in 2002 and in 2007, to extend the requirement to Mainboard companies were met with strong opposition from the business community. For now at least, Hong Kong Mainboard companies are still spared from mandatory quarterly reporting, which remains only as a recommended best practice that has a low take up rate compared to the other recommended best practices of the stock exchange.
US listed companies are required to disclose quarterly financial statements that may be condensed and unaudited in the prescribed format, which is a practice that has a long history in the country and since 1970 been made mandatory by the Securities Exchange Commission. However, criticisms on the long-standing practice resurfaced following the 2008 financial crisis, with the issue of top managers being excessively focused on short term results taking the spotlight. Although dissenting voices continue to challenge the long held assumption that investors necessarily benefit more with quarterly results disclosure, it will certainly not be easy to contend with the sacred cow status that quarterly reports have achieved through longevity in the US.
QUARTERLY REPORTING: YEA OR NAY?
A lot of ink has been spilled in the last decade on the benefits and disadvantages of quarterly reporting, and there are strong proponents on both sides of the debate. Main arguments in favour include the importance of timely disclosure in increasingly volatile markets, levelling the playing field between minority investors and controlling shareholders, instilling greater financial discipline on companies and aligning with global standards. Those in the dissenting camp highlight concerns on short- termism, preparation costs and also question the practical value of reports that are backward-looking by nature, especially when juxtaposed with the fact that listed companies are already required to promptly announce any material news and developments as and when they occur on top of the yearly and half-yearly financial statements.
Still others argue that a middle way is best and suggest differentiated requirements based on market capitalisation of companies, or making quarterly reports voluntary so that the company and shareholders may decide for themselves whether the costs outweigh the benefits of more frequent reporting.
The dust has not yet settled on this issue since the question of what constitutes good corporate governance practice changes with shifting global norms and expectations. For the Singapore Stock Exchange, there is a need for continual self-assessment of how it fares as a competitive destination for listing and investment, particularly since the stock exchange is far from insular given its vast number of foreign companies and foreign investors. It remains to be seen whether, and if so, the extent to which, the recent changes in the EU will cause ripples to the existing state of affairs elsewhere including Singapore – the issue of quarterly reporting may well be back on the agenda.