Financial Reporting - Trump Twet

Financial Reporting Not Same as Guidance

In a tweet this morning, President Trump said he had asked the Securities and Exchange Commission (SEC) to study changing required financial reporting for public companies from a quarterly system to reporting every six months.

The Council of Institutional Investors (CII) believes that public companies should continue to report quarterly on their financial performance. Said Amy Borrus, CII’s deputy director;

Investors and other stakeholders benefit when regulations ensure that important information is promptly and transparently provided to the marketplace. Investors need timely, accurate financial information to make informed investment decisions.

CII shares the view of the SEC’s Investor Advisory Committee that “the current degree, quality and frequency of disclosure for U.S. issuers overall is appropriate and a source of strength for the U.S. capital markets.” CII also generally supports the SEC’s outstanding proposal to delete redundant or overlapping disclosure requirements.

However, CII believes public companies should have flexibility on whether and how often to issue earnings guidance. CII supported a June 7 initiative by the Business Roundtable (BRT) to encourage companies to focus more on long-term performance by moving away from providing quarterly earnings per share guidance and potentially dropping such guidance in the future.

At that time, CII Executive Director Ken Bertsch expressed support for the BRT initiative in a Wall Street Journal op-ed by Jamie Dimon, chair and CEO of JPMorgan Chase and Business Roundtable chair, and Warren Buffett, chair of Berkshire Hathaway. Bertsch said;

When companies are managed for the long term, it creates value for shareholders with long investment horizons. Practices that encourage long-term thinking and investment create value for millions of Americans without sacrificing the transparency and accountability that investors deserve.

I agree with CII. Investors want quarterly earnings information. President Trump may be confusing quarterly earnings reports with guidance provided by companies on their targets. Companies are frequently judged too harshly by the market when guidance is missed by a few pennies. That short-term focus may be a reason to suspend issuing guidance but there is no good reason to suspend quarterly reporting of  financial performance.

Update: SEC Chairman Clayton issued “Statement on Investing in America for the Long Term,” which basically says they are listening.

   

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