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Trump Asks S.E.C. to Study Quarterly Earnings Requirements for Public Firms Trump Asks S.E.C. to Study Quarterly Earnings Requirements for Public Firms
(about 2 hours later)
Many leaders of public companies in the United States have complained about the negative aspects of filing quarterly financial reports, including taking up too much time and putting an excessive emphasis on short-term results. Many leaders of public companies in the United States have complained about the negative aspects of filing quarterly financial reports, citing the time they consume and their excessive emphasis on short-term results.
Those complaints appear to have a receptive audience in the White House.Those complaints appear to have a receptive audience in the White House.
President Trump, in a message posted on Twitter early Friday, wrote that he had directed the Securities and Exchange Commission to study moving corporate America from reporting earnings on a quarterly basis to doing so twice a year.President Trump, in a message posted on Twitter early Friday, wrote that he had directed the Securities and Exchange Commission to study moving corporate America from reporting earnings on a quarterly basis to doing so twice a year.
Mr. Trump’s proposal is likely to renew a debate about whether American companies are overly focused on short-term results at the expense of long-term goals. A move to twice-a-year reporting would be an important shift for American financial markets, where investors and analysts have come to rely on quarterly updates of profits and sales from public companies. At the very least, the president’s message is likely to renew a debate about whether American companies are overly focused on short-term results at the expense of long-term goals.
Elon Musk, the chief executive of the carmaker Tesla, was the latest corporate chieftain to raise the issue. In a message to Tesla employees last week explaining why he has proposed taking the company private, he wrote, “Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term.”Elon Musk, the chief executive of the carmaker Tesla, was the latest corporate chieftain to raise the issue. In a message to Tesla employees last week explaining why he has proposed taking the company private, he wrote, “Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term.”
But it is not just business leaders who have criticized the quarterly earnings requirements. Investors have as well. BlackRock, the $6 trillion firm that is the world’s largest asset manager, has urged companies to stop providing quarterly earnings estimates.But it is not just business leaders who have criticized the quarterly earnings requirements. Investors have as well. BlackRock, the $6 trillion firm that is the world’s largest asset manager, has urged companies to stop providing quarterly earnings estimates.
“Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need,” Laurence D. Fink, BlackRock’s chairman, wrote in a letter to 500 chief executives in 2016.“Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need,” Laurence D. Fink, BlackRock’s chairman, wrote in a letter to 500 chief executives in 2016.
Martin Lipton of the law firm Wachtell, Lipton, Rosen & Katz — one of the most ardent defenders of big corporations — has already called on the S.E.C. to consider letting companies step off the quarterly-reporting treadmill. Martin Lipton of the law firm Wachtell, Lipton, Rosen & Katz, one of the most ardent defenders of big corporations, has already called on the S.E.C. to consider letting companies step off the quarterly-reporting treadmill.
Mr. Trump was not the first elected office to propose reshaping the way corporate America is run this week. Senator Elizabeth Warren, Democrat of Massachusetts, proposed letting workers at public companies elect at least 40 percent of their employers’ board members. The goal, she wrote, was to curb companies from focusing primarily on maximizing returns to shareholders. Some investors are less likely to support the idea floated by Mr. Trump, which would cut down on information available about how the companies they invested in are performing.
Not all business leaders are likely to support the idea floated by Mr. Trump. Some people would argue that eliminating quarterly reports would deprive investors of valuable insight into how companies are performing. It could also be said that some companies, like Amazon, are able to focus on long-term goals while operating under the existing regulatory rules. “Investors and other stakeholders benefit when regulations ensure that important information is promptly and transparently provided to the marketplace,” said Amy Borrus, deputy director of the Council of Institutional Investors, a group representing large investors such as pension funds and endowments. “Investors need timely, accurate financial information to make informed investment decisions.”
Even those who favor moving companies away from the focus on quarterly earnings may have quibbles. In an essay published in The Wall Street Journal this summer, Jamie Dimon, the chief executive of JPMorgan Chase, and the billionaire investor Warren E. Buffett said that they favored eliminating quarter-earnings guidance, not quarterly earnings results. Jim Chanos, a well-known investor who specializes in shorting stocks, or betting their decline, agreed.
“I’m in the camp of more disclosure is better than less. And the U.S. financial disclosure is the best in the world,” Mr. Chanos said. He added, however, that some elements of the quarterly reporting process should be re-examined, including the “rampant” release of quarterly numbers that do not conform to the standard set of accounting rules used in the United States, which often make a companies financial results look better.
Even those who sometimes criticize the focus on quarterly earnings may not think that abolishing quarterly reports altogether is the right approach. In an essay published in The Wall Street Journal this summer, Jamie Dimon, the chief executive of JPMorgan Chase, and the billionaire investor Warren E. Buffett said that they favored eliminating quarter-earnings guidance, not quarterly earnings results.
“Transparency about financial and operating results is an essential aspect of U.S. public markets,” they wrote. “We support being open with shareholders about actual financial and operational metrics.”“Transparency about financial and operating results is an essential aspect of U.S. public markets,” they wrote. “We support being open with shareholders about actual financial and operational metrics.”