Even before the Trump tweet, discussions regarding interim reporting requirements for U.S. public companies had been ongoing for several years. In fact, going back to 2015, the Securities and Exchange Commission’s Advisory Committee on Small and Emerging Companies considered the advantages and disadvantages associated with discontinuing quarterly reporting. In 2016, the Director of the Commission’s Division of Corporation Finance addressed the issue in a speech in Europe, noting that, “The United Kingdom has stopped mandating that companies provide quarterly financial reports to investors. Lately, some commentators have asked the Commission to re-think the need for quarterly reporting by U.S. issuers, which has been a staple of the U.S. regulatory system since 1970, advocating that this frequency leads to short-term thinking by investors and company management. These commentators note that financial reporting that focuses on short-term performance is not conducive to building sustainable businesses because it steers management to focus on short-term goals and performance.” Flash forward a few years, and Title XXII Section 2201 of the JOBS Act 3.0 requires that the Securities and Exchange Commission conduct an analysis regarding the costs and benefits of quarterly reporting on Form 10-Q, especially for emerging growth companies. This provision may have been influenced by a report published by various trade groups, including SIFMA, about which we recently blogged. In that trade group report, a recommendation is made that emerging growth companies be given the option to issue a press release with their quarterly results rather than be required to file a quarterly report on Form 10-Q. The trade group report states that quarterly reports have become longer and more detailed, and therefore producing such reports has become more expensive. In the trade group report, the focus was on costs and reporting burdens.
At the same time, the debate relating to quarterly earnings guidance has been reinvigorated. Some have argued that quarterly reporting distracts managers from focusing on long-term goals and observe that public companies are all too concerned with short-term gains at the expense of long-term investments. The same commentators have focused in particular on the potential detrimental effects of providing quarterly earnings guidance. Perhaps these concerns are overstated. It seems that over time, fewer and fewer companies continue to provide quarterly earnings guidance. According to a recent study, approximately one-third of public companies issue quarterly earnings guidance. Nonetheless, in a piece titled “Short-Termism is Harming the Economy,” Jamie Dimon and Warren Buffett joined the Business Roundtable in calling for companies to refrain from giving quarterly guidance. The National Association of Corporate Directors and the National Investor Relations Institute joined in the call to eliminate earnings guidance. However, the Business Roundtable report does not advocate terminating the filing of quarterly reports on Form 10-Q. Regardless of whether quarterly reports on Form 10-Q are mandated or not, it would still be the case that companies would report quarterly results. The two issues—quarterly filings and quarterly guidance—appear to have been conflated making it more difficult to parse the real issues.