Many leaders of public companies in the United States have complained about the negative aspects of filing quarterly financial reports, citing the time they consume and their excessive emphasis on short-term results.
Those complaints appear to have a receptive audience in the White House.
President Donald Trump, in a message posted on Twitter early Friday, wrote that he had directed the Securities and Exchange Commission to study moving corporate America from reporting earnings on a quarterly basis to doing so twice a year.
“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!” Trump wrote.
A move to twice-a-year reporting would be an important shift for U.S. financial markets, where investors and analysts have come to rely on quarterly updates of profits and sales from public companies. At the very least, the president’s message is likely to renew a debate about whether U.S. companies are overly focused on short-term results at the expense of long-term goals.
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Elon Musk, chief executive of the carmaker Tesla, was the latest corporate chieftain to raise the issue. In a message to Tesla employees last week explaining why he has proposed taking the company private, he wrote, “Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term.”
But it is not just business leaders who have criticized the quarterly earnings requirements. Investors have as well. BlackRock, the $ 6 trillion firm that is the world’s largest asset manager, has urged companies to stop providing quarterly earnings estimates.
“Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need,” Laurence D. Fink, BlackRock’s chairman, wrote in a letter to 500 chief executives in 2016.
Martin Lipton of the law firm Wachtell, Lipton, Rosen & Katz, one of the most ardent defenders of big corporations, has already called on the SEC to consider letting companies step off the quarterly-reporting treadmill.
Some investors are less likely to support the idea floated by Trump, which would cut down on information available about how the companies they invested in are performing.
“Investors and other stakeholders benefit when regulations ensure that important information is promptly and transparently provided to the marketplace,” said Amy Borrus, deputy director of the Council of Institutional Investors, a group representing large investors such as pension funds and endowments. “Investors need timely, accurate financial information to make informed investment decisions.”
Jim Chanos, a well-known investor who specializes in shorting stocks, or betting their decline, agreed.
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“I’m in the camp of more disclosure is better than less. And the U.S. financial disclosure is the best in the world,” Chanos said. He added, however, that some elements of the quarterly reporting process should be re-examined, including the “rampant” release of quarterly numbers that do not conform to the standard set of accounting rules used in the United States, which often make a companies financial results look better.
Even those who sometimes criticize the focus on quarterly earnings may not think that abolishing quarterly reports altogether is the right approach. In an essay published in The Wall Street Journal this summer, Jamie Dimon, chief executive of JPMorgan Chase, and billionaire investor Warren E. Buffett said that they favoured eliminating quarter-earnings guidance, not quarterly earnings results.
“Transparency about financial and operating results is an essential aspect of U.S. public markets,” they wrote. “We support being open with shareholders about actual financial and operational metrics.”