President Donald Trump said Friday that he has asked the Securities and Exchange Commission to study the idea of ending quarterly reporting requirements for publicly traded companies, saying “top business leaders” had told him it would boost business and create jobs.
In a tweet dispatched Friday morning, Trump said he had spoken to “some of the world’s top business leaders” about making business and jobs “even better” in the U.S. and they had advocated an end to quarterly reporting.
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!
— Donald J. Trump (@realDonaldTrump) August 17, 2018
This summer the U.S. House of Representatives passed the JOBS and Investor Confidence Act of 2018 (S. 488), also known as the JOBS Act 3.0, with bipartisan support. One provision of the bill includes a requirement that the SEC review the quarterly reporting requirement.
Critics of quarterly reporting say they encourage companies to excessively focus on short-term results rather than the long-term performance of public companies. Putting together quarterly reports is also a huge cost for public companies, requiring resources to be directed at reporting rather than producing goods and services for the market.
The influential law firm Wachtell, Lipton, Rosen & Katz put out a memo to clients two years ago advocating for an end to quarterly reporting. The memo pointed to reform efforts in the U.K. to end quarterly reporting requirements. Regulators there had found that “rigid quarterly reporting requirements can promote an excessively short-term focus by companies, investors and market intermediaries and impose unnecessary regulatory burdens on companies, without providing useful or meaningful information for investors.”
The U.K. formally ended the quarterly requirement in 2014. Many companies, however, continued to provide quarterly reports even though they were no longer required. It remains unclear whether abandoning quarterly reporting improved longer-term business performance.
This summer Berkshire Hathaway’s Warren Buffett and JP Morgan Chase chief Jamie Dimon called on corporate leaders to stop providing quarterly guidance, forecasts of how a company thinks it will do in three-month increments but stopped short of calling for an end of quarterly reports. They blamed guidance for excessive short-term thinking.