Corporate disclosure mavens, we have an issue that needs attention: Nobody is talking about the SEC’s recent call for comments about moving to a semiannual corporate reporting regime.
As you might recall, the SEC published its call for comment in December — 31 pages of questions, asking investors, corporations, and all other interested parties whether the current U.S. system of quarterly reporting should be scaled back to every six months. The concept release is open for public comment until March 21.
Well, as of this week, the SEC had received exactly eight comments on its proposal. The most recent was from Jan. 20; the other seven were filed back in December when the SEC first floated its call for comment. All are from retail investors or other individuals speaking only for themselves.
Yes, we’re likely to see a flurry of comments arrive at the 11th hour from notable voices in the corporate regulatory world, such as the U.S. Chamber of Commerce, the Council of Institutional Investors, law firms, audit firms, and other advocacy groups.
Still, we’re now more than halfway through the public comment period. This is an important issue with serious implications for corporate executives who compile the data that go into quarterly reports, earnings releases, and Form 8-Ks. If you or your company have an opinion on the subject, now is the time to start typing it up.
Semi-annual reporting has been a pet cause of business groups for years. Reduce required disclosure, they say, because most investors don’t read that information, and the money used to prepare quarterly reports could be better used elsewhere. Moving to a six-month reporting cycle would also give executives more time to study and plan strategy, rather than focus on short-term Wall Street expectations.
President Trump blurted out his support for semiannual reporting last summer, shortly after a dinner with CEOs where someone must have put the idea into his head. That sent the SEC scrambling to assemble the concept release it published in December.
SEC chairman Jay Clayton has dodged taking a clear stance on reporting cycles. Clearly he’s open to reduced reporting for smaller companies, but he also understands that relieving larger firms of quarterly reporting would be A Big Deal. If we see any action in 2019 at all, it’s likely to be a proposal that applies to smaller reporting companies only, while the jargon-larded 10-Qs we’ve all come to expect from the S&P 500 stay fat.
So what are those brave few commenters actually saying? Let’s take a look…
B. Mielke, whoever that is, first complained about the visual presentation of periodic reports — “all of the incredibly small fonts used in the various footnotes, or the footnote that consumes half a page of the quarterly or annual statement” — before ripping into the idea of reduced disclosure generally:
The average shareholder now only gets a very limited view into the health of the company that is the basis of their investment. Given the quick reversal of fortune several large corporations have suffered recently (GE), this reversal was not unexpected, and because of the reporting requirements the management was forced to take action.
But with a reduction in [periodic reporting] a company’s finances could have been hidden until the company management decided that the situation is untenable, and late on a Friday afternoon filed for relief via the courts. Creating more chaos in an already chaotic market.
Mielke is not wrong that firms with bad news tend to file that news late on a Friday, catching everyone by surprise with an earnings miss or a goodwill impairment or some such thing.
James Kloss, a private investor, noted that short-termism is in the eye of the beholder:
‘Short-termism’ is relative. I can track market movements and take actions at microsecond intervals. To such a trader, swing trading based on daily or weekly intervals are an eternity. Re-evaluating companies and investments based on quarterly statements is neither short- nor long- ‘termism.’ Based on how often quarterly reports DO reflect new information, often causing significant market reaction, the interval is both reasonable and useful in helping investors keep track of the performance of their equity holdings.
Karl Weston suggested that companies have the choice of reporting two, three, or four times per year:
If reduced periodic reporting is implemented then the public companies would need clarity in guidance regarding filings using form 8-K. I don’t think reducing periodic reporting should result in greater 8-K filings.
We need to reduce administrative costs for public companies. There is too much focus on short-term trends/results.
And then there are the words of Robert Rutowski, proving yet again that the mere mention of President Trump anywhere near a valid policy question ruins it for everyone:
This move follows a tweet from Donald Trump in August calling for an end to quarterly reporting.
It’s one thing for a six-time bankrupt grifter who won’t release his tax returns to propose reducing disclosure for American companies. It’s another thing entirely for the SEC to take this proposal seriously. Donald Trump is a walking, talking case for bolstering, rather than limiting, corporate disclosure requirements.
Rutowski copied House Democrats on his email to the SEC.
Of course everyone is entitled to his own opinion. Suffice to say, however, that the eight opinions submitted to the SEC so far don’t quite pass muster as robust public discourse. Let’s see what the next six weeks bring.