A few weeks ago the President renewed discussion of the possibility of eliminating quarterly reporting by US public companies and moving back to semi-annual reports. In a tweet on August 17, he said, “In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. ‘Stop quarterly reporting & go to a six-month system,’ said one. That would allow greater flexibility & save money. I have asked the SEC to study!” He later indicated the idea came primarily from the CEO of Pepsi. Later that day SEC Chairman Jay Clayton said that the SEC “continues to study public company reporting requirements, including the frequency of reporting.”
This is not a new drumbeat. It was reported about 3 years ago that some leading attorneys, including Marty Lipton of M&A law firm Wachtell Lipton, were making just such an argument. Why is less reporting potentially good? As was noted in 2015, because it allows companies to focus less on short-term results, which can help encourage capital investment and strategic thinking, especially in this era of activist investing. Who else agrees? Al Gore. The European Union eliminated mandatory quarterly reporting for listed companies in 2013. It is only since 1970 that the SEC required quarterly reporting for US public companies.
Those who counter this argument believe six months is too long to spot trends that are developing. They also argue that shareholder activists help shine a light on bad managers. Interestingly, Clayton’s response to the President’s tweet did not seem to suggest he considered the tweet a mandate requiring him to commence a formal review of the issue. Under recent legislation, the SEC currently is examining a variety of steps to simplify and update disclosure requirements. It will be interesting to see if the Commission takes a more serious look at reducing compliance obligations and pressure to beat quarterly earnings expectations.