ExxonMobil Holdings CFO Neil Hansen is one of thousands of letter writers who have weighed in on the Securities and Exchange Commission’s proposal that would allow public companies to opt out of the current quarterly reporting filing requirements.

His signed 11-page letter on the oil giant’s letterhead is notable not only because Hansen is the finance chief of one of the world’s most powerful companies making the case for allowing companies to choose twice annual reporting which would effectively eliminate the quarterly reporting requirement that has been in place for decades. 

The correspondence, dated June 24, is also notable because of its full-throated support of the plan. While he’s not alone in backing the plan, his support stands in stark contrast to a groundswell of opposition that flooded into the SEC portal during the public comment period that ended Monday, including from other veteran finance leaders such as former Netflix CFO David Wells, CFO Dive previously reported. 

For his part, Hansen pushes back on the notion that the new system would lead to a less transparent market, noting that the modern corporate "disclosure ecosystem” has effectively outgrown 10-Qs, as investors now get more timely information from a range of sources including investor presentations, webcasts and earnings releases. He also states existing 8-K and Regulation Fair Disclosure requirements preserve “the flow of material information to the market.” 

He stops short of committing the energy company to semiannual reporting, noting that if the company opted in it expects to continue providing quarterly financial disclosures through earnings via 8-Ks. At the same time he forecasts such a change would yield a “net positive impact” for the company.

“We expect tangible reductions in the time and effort required from employees, management, the Board of Directors, and our independent registered public accounting firm in preparing, reviewing, and filing interim reports,” he writes.  

Here are five steps Hansen suggests for the SEC to successfully implement the semiannual reporting framework being considered:

Ensure semiannual reporting is optional

Mandating a twice annual reporting cadence could have "unintended consequences,” he writes. Companies vary greatly in size, maturity, industry and investor base and it should be up to them whether it makes sense to pivot or stick with 10-Qs. “Investor considerations, rather than regulatory mandate, should largely determine the cadence and format of interim reporting,” the letter states.

Establish a less onerous format for 1Q and 3Q financial statements  

Hansen recommends the SEC adopt a system that would give companies electing semiannual reporting the option of filing 1Q and 3Q reports on a new 8-K Item 8.02 that would allow them to file but not furnish those quarterly financial statements. “Unlike a full Form 10-Q, the proposed Item 8.02 should be carefully scoped to require only condensed consolidated financial statements and incremental, decision-useful updates that are material changes from the issuer’s most recent Form 10-K or Form 10- S, rather than a comprehensive refresh of all quarterly disclosures required under GAAP,” he writes. 

Stick with furnished not filed

The SEC should continue to permit companies to provide earnings releases via Form 8-Ks on a furnished rather than filed basis. The distinction in the classifications carries different legal implications, with furnished information not exposing a company to liability under Section 18 of the Securities Exchange Act of 1934 (Exchange Act) while filed information does, according to a blog post by the Austin Legal Group.

“The Commission’s furnished information framework promotes robust and candid disclosure,” Hansen’s letter states. “[T]he framework encourages issuers to provide prompt disclosure, supplemental context, operational insights, and forward-looking information that investors value, but which might otherwise be constrained or omitted if earnings releases were required to be filed.” 

Make certain auditor reviews optional 

Companies that opt for semiannual reporting should also be allowed to choose whether to have an independent public accounting firm review the 1Q and 3Q financial statements included in earnings releases, the letter asserts. “Allowing issuer optionality in this area is consistent with the Commission’s objective of reducing compliance burden while preserving investor protection through transparency,” Hansen writes.

Flip the switch to semiannual quickly 

If the new twice-yearly reporting cadence is adopted, Hansen doesn’t believe a “formal transition period is necessary” and asserts a calendar quarter should be enough time for a company to prepare for the change. “For example, if a final rule is published and effective by September 30, an issuer should be able to determine—by the time it files its Form 10-K for that year—whether it will elect semiannual reporting in the following fiscal year.”