President Donald Trump recently proposed a scaling back of the frequency in which publicly traded companies are required to report financial results. Currently required to report earnings quarterly, the new system would require only semi-annual reports. This would be a drastic change to the longstanding tradition of quarterly reporting set by the Securities and Exchange Commission (SEC) in the 1930s.
The proposal tweeted in August, was prompted by a conversation with “some of the world’s top business leaders,” one of which was later identified as Indra Nooyi, CEO of PepsiCo, about what would improve business and the U.S. job market. Nooyi is stepping down as CEO of PepsiCo in October 2018.
Defenders of the proposal believe that the semi-annual system would allow for greater flexibility and allow companies to save money.
Some believe that the quarterly system is costly and distracts companies from creating and focusing on long-term strategy, instead of putting the focus on short-term performance and stock price gains, while others believe that the quarterly system sets a precedent for transparency and reduces the incentive for insider trading and other unethical practices.
The SEC, established during the Great Depression in the 1930s, has required public companies to report on profit and revenues every three months since the regulation was first established in the ‘30s as a means of giving investors confidence. As recently as 2016, the SEC considered doing away with the quarterly reporting requirement, so the president’s proposal was not entirely out of the blue.
Jay Clayton, SEC chairman, made a statement following Trump’s proposal indicating that the SEC “continues to study” the rules and requirements for publicly-owned companies.
While the future frequency of financial reporting for public companies is yet to be determined, proponents on both side have been weighing in since Trump’s proposal in mid-August. Though companies would be freer to focus on long-term growth, critics are concerned with earnings manipulation and reduced transparency.
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