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| Trump sees win with push to reform quarterly earnings reports | Trump sees win with push to reform quarterly earnings reports |
| (about 2 months later) | |
| Donald Trump may be roiling financial markets, threatening to widen a trade war or predicting “the market would crash” if he is impeached, but one presidential endorsement has some American CEOs cheering. | Donald Trump may be roiling financial markets, threatening to widen a trade war or predicting “the market would crash” if he is impeached, but one presidential endorsement has some American CEOs cheering. |
| Last week, the president tweeted that he had asked the world’s “top business leaders” what would improve their lives. Their answer? Stop the current system of reporting earnings every three months and move to a six-month system. | Last week, the president tweeted that he had asked the world’s “top business leaders” what would improve their lives. Their answer? Stop the current system of reporting earnings every three months and move to a six-month system. |
| Fed chairman defends rate rise policy after attack by Trump | Fed chairman defends rate rise policy after attack by Trump |
| “That would allow greater flexibility & save money,” Trump wrote. “I have asked the SEC to study!” | “That would allow greater flexibility & save money,” Trump wrote. “I have asked the SEC to study!” |
| American CEOs loved Trump’s tax cuts. But since then they have increasingly been at odds with the White House on subjects ranging from immigration to trade. Reform of the earnings calendar might win Trump a few more fans back. | American CEOs loved Trump’s tax cuts. But since then they have increasingly been at odds with the White House on subjects ranging from immigration to trade. Reform of the earnings calendar might win Trump a few more fans back. |
| Why the idea of changing the quarterly earning system should come up now isn’t hard to grasp. | Why the idea of changing the quarterly earning system should come up now isn’t hard to grasp. |
| In June, Jamie Dimon, CEO of JPMorgan Chase; Warren Buffett, chairman of Berkshire Hathaway; and the Business Roundtable, an association of nearly 200 CEOs from major companies, penned a joint letter titled Short-Termism Is Harming the Economy. | In June, Jamie Dimon, CEO of JPMorgan Chase; Warren Buffett, chairman of Berkshire Hathaway; and the Business Roundtable, an association of nearly 200 CEOs from major companies, penned a joint letter titled Short-Termism Is Harming the Economy. |
| Reporting company results four times a year is just too much, they argued. In view of their “responsibility to leave behind a stronger, more prosperous society than the one [they] found” the CEOs called on public companies to consider moving away from providing quarterly earnings per share guidance. | Reporting company results four times a year is just too much, they argued. In view of their “responsibility to leave behind a stronger, more prosperous society than the one [they] found” the CEOs called on public companies to consider moving away from providing quarterly earnings per share guidance. |
| “In our experience,” they wrote, “quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability.” | “In our experience,” they wrote, “quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability.” |
| Quarterly earnings per share guidance had contributed to a shift away from long-term investments and “caused companies to hold back on technology spending, hiring and research and development to meet quarterly earnings forecasts”. | Quarterly earnings per share guidance had contributed to a shift away from long-term investments and “caused companies to hold back on technology spending, hiring and research and development to meet quarterly earnings forecasts”. |
| Moreover, Dimon and Buffett said, the pressure had contributed to the decline in the number of public companies in America over the past two decades. | Moreover, Dimon and Buffett said, the pressure had contributed to the decline in the number of public companies in America over the past two decades. |
| Their proposal, they said, built on a Commonsense Corporate Governance Principles manifesto US business leaders developed in 2016 and would advance business practices that “create value for millions of Americans without sacrificing the transparency and accountability that investors deserve”. | Their proposal, they said, built on a Commonsense Corporate Governance Principles manifesto US business leaders developed in 2016 and would advance business practices that “create value for millions of Americans without sacrificing the transparency and accountability that investors deserve”. |
| The idea was then picked up by the outgoing PepsiCo CEO Indra Nooyi who, Trump later reported, had told him over dinner at his golf retreat in New Jersey: “Two-time-a-year reporting, not quarterly.” | The idea was then picked up by the outgoing PepsiCo CEO Indra Nooyi who, Trump later reported, had told him over dinner at his golf retreat in New Jersey: “Two-time-a-year reporting, not quarterly.” |
| The idea has some academic backing, too. Tensie Whelan, founding director of New York University’s Stern’s Center for Sustainable Business, recently wrote that the need to hit quarterly targets had led to “unprecedented share buybacks which artificially boost stock prices, non-strategic cost-cutting, less investment in longer-term basic and applied research (versus product development), as well as an unhealthy pressure on labor costs”. | The idea has some academic backing, too. Tensie Whelan, founding director of New York University’s Stern’s Center for Sustainable Business, recently wrote that the need to hit quarterly targets had led to “unprecedented share buybacks which artificially boost stock prices, non-strategic cost-cutting, less investment in longer-term basic and applied research (versus product development), as well as an unhealthy pressure on labor costs”. |
| Quarterly reporting began in the US in the aftermath of the 1929 stock market crash when regulators wanted to give investors a more frequent opportunity to look under the hood of the publicly traded companies they were investing in. | Quarterly reporting began in the US in the aftermath of the 1929 stock market crash when regulators wanted to give investors a more frequent opportunity to look under the hood of the publicly traded companies they were investing in. |
| The US Chamber of Commerce thinks scaling back reporting frequency because what befitted a 1930s-era disclosure system “no longer meets the needs of a 21st-century economy”. | The US Chamber of Commerce thinks scaling back reporting frequency because what befitted a 1930s-era disclosure system “no longer meets the needs of a 21st-century economy”. |
| Others, like the former SEC chairman Harvey Pitt, argue there should be a deal in which regulators offer to reduce frequency of reporting if investors get information about changes more quickly. | Others, like the former SEC chairman Harvey Pitt, argue there should be a deal in which regulators offer to reduce frequency of reporting if investors get information about changes more quickly. |
| He told the Wall Street Journal that the aim of reducing reporting costs is “something that investors should want as well”. | He told the Wall Street Journal that the aim of reducing reporting costs is “something that investors should want as well”. |
| While flipping back to to a biannual system would bring the US in line with Europe, which scrapped rules requiring quarterly earnings reports after the global financial crisis as part of a drive to reduce the bureaucratic burden on businesses, others believe that cutting down the frequency of financial performance information doesn’t solve the underlying problem of earnings manipulation. | While flipping back to to a biannual system would bring the US in line with Europe, which scrapped rules requiring quarterly earnings reports after the global financial crisis as part of a drive to reduce the bureaucratic burden on businesses, others believe that cutting down the frequency of financial performance information doesn’t solve the underlying problem of earnings manipulation. |
| “If you bring it down to twice a year then you’ll get manipulation twice a year instead,” argues Charles Elson, professor of corporate governance at the University of Delaware. “If the goal is to eliminate earnings manipulation, this isn’t the way to do it.’ | “If you bring it down to twice a year then you’ll get manipulation twice a year instead,” argues Charles Elson, professor of corporate governance at the University of Delaware. “If the goal is to eliminate earnings manipulation, this isn’t the way to do it.’ |
| Elson argues that quarterly reporting is like the speedometer in a car, useful to check once in awhile but not crucial to the overall journey. The only number with any significance for judging a business, he says, is the year-end number. Getting rid of quarterly reporting, he says, is “a solution in search of a problem”. | Elson argues that quarterly reporting is like the speedometer in a car, useful to check once in awhile but not crucial to the overall journey. The only number with any significance for judging a business, he says, is the year-end number. Getting rid of quarterly reporting, he says, is “a solution in search of a problem”. |
| If there is an issue, it’s about how management communicates with analysts, he says. “A management that plays with numbers ultimately gets discovered. If you have a bad quarter and can explain why, people give you the benefit of doubt – that’s called communication.” | If there is an issue, it’s about how management communicates with analysts, he says. “A management that plays with numbers ultimately gets discovered. If you have a bad quarter and can explain why, people give you the benefit of doubt – that’s called communication.” |
| How a Wall Street bull run that smashed all the records evolved | How a Wall Street bull run that smashed all the records evolved |
| The best way to solve the issue of “short-termism” identified by Dimon, Buffett and Business Roundtable is not to offer less information because that doesn’t solve the issue of poor management. | The best way to solve the issue of “short-termism” identified by Dimon, Buffett and Business Roundtable is not to offer less information because that doesn’t solve the issue of poor management. |
| “It’s not that what they are suggesting is terrible it’s just not a solution to the problem they’re responding to,” Elson says. “The way to avoid mismanagement is for the board to insist that management runs the company not for a quarter but for long-term results.” | “It’s not that what they are suggesting is terrible it’s just not a solution to the problem they’re responding to,” Elson says. “The way to avoid mismanagement is for the board to insist that management runs the company not for a quarter but for long-term results.” |
| The proposal to maintain or scrap quarterly earnings reporting ultimately falls under the purview of the SEC. | The proposal to maintain or scrap quarterly earnings reporting ultimately falls under the purview of the SEC. |
| The commission chairman, Jay Clayton, said in a statement that Trump had “highlighted a key consideration for American companies and, importantly, American investors and their families – encouraging long-term investment in our country”. | The commission chairman, Jay Clayton, said in a statement that Trump had “highlighted a key consideration for American companies and, importantly, American investors and their families – encouraging long-term investment in our country”. |
| Whether or not that will prove to be the case remains to be seen. | Whether or not that will prove to be the case remains to be seen. |
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