President Donald Trump on Monday doubled down on a push he made in his first term to allow public companies to ditch quarterly earnings reports and instead shift to reporting every six months, according to a social media post on his Truth Social account.
“This will save money, and allow managers to focus on properly running their companies,” Trump wrote. “Did you ever hear the statement that, “China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis???” Not good!!!”
Trump made a similar pitch during his first term, asserting that unnamed top business leaders had told him fewer reports would be better for business and jobs in the U.S. in a social media post on Aug. 17, 2018, where he said he had asked the Securities and Exchange Commission to study the issue.
Such big names as billionaire investor Warren Buffett and JPMorgan Chase CEO Jamie Dimon have also criticized the focus on quarterly earnings, The Wall Street Journal reported on June 7, 2018. Dimon in June of 2018 said that executives often feel pressure to make quarterly forecasts but it “can often put a company in a position where management from the CEO down feels obligated to deliver earnings and therefore may do things that they wouldn’t otherwise have done,” CNBC reported.
The SEC began requiring semi-annual reporting in 1955 and changed in 1970 to mandate quarterly reporting for publicly traded companies, according to a 2018 report on the SEC website from Brown University. But some accounting and corporate finance experts on Monday said changing the current system back to the twice-yearly reporting would have both negative and positive consequences for finance teams and their companies.
“I wouldn’t call this a ‘slam dunk’ for CFOs. There’s clearly more nuance beneath the headline,” said Nick Araco Jr., CEO and founder of CFO Alliance, a subscription peer network for finance leaders.
In the roundtables and online forums where Araco participates, many finance leaders view the quarterly reports as a healthy “pressure point” that keep management sharp and on top of issues. For mid-market and smaller companies in particular, several CFOs have said the quarterly system is a way of staying agile, he said.
“Many also value quarterly reporting as what I would term 'an early warning system,'” Araco said in an email Monday. “It gives boards, investors, and management visibility into trends before they become major problems, which is especially important in today’s volatile economic environment,” he said.
There are of course advantages to eliminating the time-consuming quarterly reporting process. “On the plus side, shifting to semi-annual reporting would likely free CFOs and finance teams from the quarterly disclosure treadmill and give them more bandwidth and resources to focus on long-term strategy, innovation, and building more agile and resilient organizations,” Araco said. “That’s certainly a compelling argument.”
Simply put, at least initially, reducing the number of times of year that companies need to report their earnings will take some of the stress away from the CFO and their finances, Jack Castonguay, an associate professor of accounting at Hofstra University. “It makes their job easier,” he said, while making the job that investors have to analyze companies harder by providing less information.
But digging further in, when it came to the two times a year that earnings would need to be issued, the pressure would be more intense, he said. “They would only have two opportunities to make sure it’s right,” Castonguay said in an interview.
Trump’s advocacy on Monday lends political power to an initiative that has recently shown signs of gaining momentum.
Last week, the Long-Term Stock Exchange, a stock-trading venue for companies focused on long-term goals, told The Wall Street Journal that it plans to petition the SEC to eliminate the quarterly earnings report requirement and instead give companies the option to do so only twice a year, according to a Sept. 8 WSJ report. TD Cowen analyst Jaret Seiberg said the action by the SEC on the matter was “probable” and “in keeping with SEC Chair Paul Atkins’ deregulatory views though he didn’t anticipate a proposal until 2026 “at the earliest,” according to a Morningstar report.
Robert J. Pawlewicz, an assistant professor of accounting at the University of Richmond in Richmond, Virginia, said the process of SEC rule-making is typically a lengthy one that can take months or years because it normally involves a proposal, a public comment period, a cost-benefit analysis and a final rule.
“That said, this administration and SEC have shown a willingness to flout the normal processes in multiple ways,” Pawlewicz said in an email. “...the timing of the standard-setting process could be accelerated by the Atkins-led SEC.”
The process could also be impacted by pushback from the investment community. “While public companies (and their executives) may applaud this change, as it will reduce their reporting costs, investors typically frown on any reduction of information on which they base decisions,” Pawlewicz said. “How this process will play out will provide an interesting glimpse into how much sway Wall Street has with this White House.”
The SEC did not respond to a request for comment.
