The Securities and Exchange Commission will soon seek input on curbing financial reporting requirements for U.S. corporations, Chairman Jay Clayton said in testimony submitted to the Senate Banking Committee, a move that comes several months after President Trump pressed the agency to abolish the three-month reporting cycle.
The goal is to reduce compliance burdens “with respect to quarterly reports while maintaining, and in some cases enhancing, investor protections,” he wrote in testimony for a hearing on Tuesday. Some corporate executives have said the practice of announcing quarterly earnings targets, common among publicly traded U.S. corporations when disclosing mandatory financial data, encourages short-term tactics that can undermine a company’s long-term health.
Clayton noted there is an “ongoing debate regarding our approach to mandated quarterly reporting” and encouraged all “market participants to share their view.” Trump asked the SEC in August to study allowing publicly traded U.S. companies to report their financial performance every six months instead of once a quarter, heightening scrutiny of how the practices affect corporate costs and behavior.
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
The agency is also reviewing whether changes are needed to the existing process for shareholders to submit ballot measures seeking to force action by corporations, including hiking the threshold that investors must meet to submit such proposals. Currently, ownership of only $2,000 worth of a company’s stock is required.
Groups like the U.S. Chamber of Commerce have advocated for a higher amount, claiming that activists have used the low barrier to advance more politically motivated proposals that address issues outside the responsibility of the board.
Supporters of the current system argue that raising the minimum amount would weaken the ability of retail investors, or those who buy and manage their own stock — often holding only small stakes — to have a voice in the company’s future.
“With these long-term, retail investors in mind, we also should consider whether there are factors, in addition to the amount invested and the length of time shares are held, that reasonably demonstrate that the proposing shareholder’s interests are aligned with those of a company’s long-term investors,” Clayton wrote.
Agency staff is preparing to issue suggestions to adjust the shareholder proposal process, as well as whether any additional requirements should be placed on proxy advisory firms, which provide voting recommendations to investors.
Critics charge that firms like Institutional Shareholder Services and Glass Lewis are too prescriptive in their analysis and often publish reports with factual errors that can be difficult, if not impossible to correct. Clayton said there is a need for “clarity regarding the analytical and decision-making processes advisers employ, including the extent to which those analytics are company- or industry-specific.”
“It is clear to me that some matters put to a shareholder vote can only be analyzed effectively on a company-specific basis, as opposed to applying a more general market or industry-wide policy,” he wrote.
Clayton intends “to move forward with the staff recommendations” and will prioritize those that would benefit long-term Main Street investors.
