U.S. President Donald Trump on Friday said meetings with corporate executives prompted him to ask the U.S. Securities and Exchange Commission (SEC) to study letting public companies file financial reports every six months instead of every quarter.
Half-yearly reporting would mark a huge change in U.S. disclosure requirements and put them in line with European Union and United Kingdom rules. By tweeting that the switch would give companies more flexibility and reduce costs, Trump waded into a long-running debate on how often companies should report.
“I’d like to see twice, but we’re going to see,” Trump later told reporters when asked about his tweet. He said outgoing PepsiCo Inc (PEP.O) Chief Executive Indra Nooyi had brought it up to him.
“Many market participants, as well as the Business Roundtable which we are a part of, have been discussing how to better orient corporations to have a more long-term view,” Nooyi said in a statement emailed to Reuters.
“My comments were made in that broader context, and included a suggestion to explore the harmonization of the European system and the U.S. system of financial reporting. In the end, all companies have to balance short-term and long-term performance.”
Some investors on Friday said quarterly disclosures are essential for investment decisions and supported richer U.S. stock valuations, and that shares could become more volatile if companies report twice yearly.
But executives and other investors said Trump’s argument made sense because it would cut costs of compiling and filing results and remove short-term distractions for those running companies. The SEC is an independent agency, and the president cannot force it to implement rule changes. Any move to scrap quarterly filings would have to be voted on by the SEC’s sitting commissioners, who are political appointees.
While capital market rules are not traditionally a partisan issue, a major rule change would likely meet opposition from the agency’s two Democratic-leaning commissioners, Robert Jackson and Kara Stein, who generally advocate for strong corporate governance.
The SEC declined to comment. Commissioners Hester Peirce, Jackson and Stein declined to comment. A spokeswoman for Chairman Jay Clayton did not respond to a request for comment.
Even if the SEC concluded the change was a good idea, companies would likely stick with the current regime to avoid investor backlash, said Ed Yardeni, founder and chief investment strategist at Yardeni Research.
“It’s cockamamie idea. For starters, what’s the difference between six and three months? … Either way we’re talking about a very short-term period,” Yardeni added.
Under Clayton, a Trump appointee, the SEC has taken steps to relax rules for issuers, including allowing firms going public to file information confidentially, and is currently discussing easing other compliance rules. But scrapping quarterly reporting is not on the SEC’s near-term agenda, according to public records.
Tesla Inc (TSLA.O) Chief Executive Elon Musk stunned investors last week with a plan to take the electric carmaker private, a move he says would benefit shareholders by removing short-term pressures.
“I do believe it will help upper management … We start preparing three weeks in advance every quarter, essentially taking almost a third of executives’ time each quarter,” said Bryan Sheffield, chief executive of shale oil producer Parsley Energy Inc (PE.N).
But he said energy companies would probably still report some oil and gas well data every three months to please investors.
Trump recently hosted company leaders at his private golf club in Bedminster, New Jersey, including the heads of Apple Inc (AAPL.O), Fiat Chrysler Automobiles NV (FCHA.MI), Boeing Co (BA.N), FedEx Corp (FDX.N), and Honeywell International Inc (HON.N).
The Trump administration has said it would like to reduce red tape it blames for a decline in public listings.
In 1998, there were around 7,500 listed companies in the United States, compared with around 4,300 in 2017, according to data compiled by the World Bank.
Last fall it laid out changes to capital market rules in a U.S. Treasury report, but did not advocate scrapping quarterly reporting.
Business groups including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and exchange operator Nasdaq have been lobbying hard over the past year for lawmakers and the SEC to relax listing rules, warning that the decline in listings hurts jobs and pension funds.
Billionaire investor Warren Buffett and JPMorgan Chase & Co (JPM.N) Chief Executive Jamie Dimon wrote in the Wall Street Journal in June that companies should move away from quarterly guidance, but did not call for an end to quarterly reporting.
“If public companies moved from quarterly to semi-annual reporting, that would deprive investors of timely information and dramatically increase the potential for insider trading,” said Robert Pozen, Senior Lecturer at the MIT Sloan School of Management.
Companies that want to distance themselves from short-term scrutiny should instead stop publicly projecting the next quarter’s earnings, Pozen added.
The Council of Institutional Investors (CII) believes that public companies should continue to report quarterly.
“Investors and other stakeholders benefit when regulations ensure that important information is promptly and transparently provided to the marketplace,” said Amy Borrus, CII’s deputy director. “Investors need timely, accurate financial information to make informed investment decisions.”