Explainer: It will be tough for Trump's SEC to overhaul reporting rules
20 August, 2018, 04:29 | Author: Elaine Woods
Securities and Exchange Commission Chairman Jay Clayton on Friday issued a statement about long-term investing in which he neither endorsed nor rejected the call from President Donald Trump for companies to report to twice a year, rather than four times a year.
The move would improve "flexibility and save money" Trump said. He also said he would find it challenging not to get information every quarter because so much can change in six months.
The idea came from an unnamed "top business leader", Mr. Trump wrote, although the idea has been bandied around for decades.
A top criticism is that if companies are striving to report profit gains every quarter, they are more likely to buy back shares and cut costs than invest in their businesses.
Following Clayton's statement, the agency also announced it had voted to adopt a rule change first proposed in 2016 to streamline some company accounting disclosures, in an unscheduled private commission vote.
But moving away from reporting earnings every three months would be a much more dramatic change that would nearly certainly trigger resistance from shareholders who want transparency from the companies they invest in.
"If public companies moved from quarterly to semi-annual reporting, that would deprive investors of timely information and dramatically increase the potential for insider trading", said Robert Pozen, Senior Lecturer at the MIT Sloan School of Management, who has studied the issue. The report compares company earnings with that of the previous year. "Many investors and market participants share this perspective on the importance of long-term investing". That can pressure executives to engage in reckless practices to hit quarterly targets or even to manipulate earnings reports. One provision of the bill includes a requirement that the SEC review the quarterly reporting requirement.
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Billionaire investor Warren Buffett and JPMorgan Chase & Co Chief Executive Jamie Dimon wrote in the Wall Street Journal in June that US companies should move away from giving quarterly guidance, arguing it holds back spending on hiring, investment and research, but did not call for an end to quarterly reporting.
He said outgoing PepsiCo Inc (PEP.O) Chief Executive Indra Nooyi had brought it up to him.
The SEC has been reluctant to make any changes in quarterly financial reporting, which has always been a cornerstone of USA capital markets.
The SEC has been reluctant to make changes in quarterly reporting, which has always been a cornerstone of United States capital markets. A statistic they often point to is the drop in IPOs over the past 20 years.
The SEC could make such a change on its own without Congress passing legislation but that doesn't mean it will, said David Martin, who previously ran the agency unit that oversees corporate filings.
Druckenmiller noted that investors like to know what's going on with the companies they invest in.
President Trump has instructed the American markets watchdog to investigate ending the quarterly reporting requirement for public companies that has been in place for almost 50 years. That number fell to 237 in 2017.
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