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SEC Takes Up Six Month Public Company Reporting Idea From President Trump

November 20, 2018


Securities and Exchange Commission Chairman Jay Clayton said the SEC is looking at a proposal from President Trump to change the quarterly financial reporting cycle for public companies.


In August, Trump tweeted, “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!”


Clayton indicated Monday that the SEC is taking the proposal seriously. “The president was right to raise this issue,” he said during Financial Executives International’s Current Financial Reporting Issues conference in New York. “He touched a nerve because I don’t think any of us want our very important private sector enterprises to be run on a short-term quarter to quarter basis. That’s important. I hope that most management teams have a strategic plan that goes out two, three or four years and are looking to invest over that horizon. Look, there are people in this room that have industries where your investment horizon is 10, 15, 20 years. You can’t be running your organization for December 31 of this year exclusively.”


However, Clayton also pointed to some of the benefits of quarterly reporting for investors. “That said, you can see the other side of it, which is that our capital markets thirst for information,” he said. “They thirst for reliable, comparable regular information. That’s a reality. So the president raised a very good point, and we’re looking at it.”


Clayton noted that oftentimes, investors pay more attention to the earnings press releases than the 10-Q quarterly financial reports and 10-K annual reports. “I can give you some observations that are informing the way I think about it,” he said. “You go through the Q process times a year and then the K process. There was a time when in many cases the earnings release would come out before the Q. If the stock moved after the Q came out and not when the earnings release came out, you had a big problem. You had a huge problem, which meant really all of the quarterly information that was necessary for the market was in the earnings release. So one of the questions I’ve been asking myself is do we need that Q process every quarter, or do we need it every six months with something that is less voluminous, but still provides all of the quality information that investors need? It’s a good question, but in terms of a quarterly reporting cycle, I think we all have to recognize that whether it’s your credit agreement or indentures, all of these other parts of your corporate ecosystem, they’re based around this concept. But I very much support the president’s question of are we managing too much for the short term and what can we do about it?”


SEC chief accountant Wesley Bricker noted that the question of dispensing with quarterly financial reports has been on the SEC’s radar for years now, pre-dating Trump’s tweet. “This has been on an agenda through the Reg S-K concept release where we got valuable input in 2015,” he said during a press conference. “That input in 2015 has contributed to our thinking on our Regulatory Flexibility Agenda, which is where the commission and all other government agencies describe their outlook for the next 12 months. On that agenda, which is available online, it includes an entry for looking at the frequency of reporting and the nature of internal reporting. That’s designed as a request for comment, not a specific proposal, and certainly not a final rule. It’s a request for comment to continue to gather input from how the balancing of information in our marketplace and the thirst for information has changed with the duplication that may arise with an earnings release and a 10-Q quarterly filing.”

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