With the White House taking a renewed interest in biannual reporting for public companies, aligning with practices prevalent in Europe and elsewhere in an attempt to disincentivize excessively short-term maneuvering, much of the corporate-side discourse inevitably shifts to whether the very real costs and hassles of quarterly reporting can be reduced without penalty, while the investor-side discourse focuses on the potential loss in terms of leadership accountability and timeliness of updates.
This change could indeed be quite significant, with profound implications across the economy.
At the same time, let’s first take a breath and remember that the sky isn’t exactly falling for listed company transparency even if the formal requirement slackens.
Significant Considerations and a Thought Experiment
Why? Two significant considerations and one thought experiment immediately come to mind.
First of all, remember that many of the core IR activities and materials – things like earnings conference calls, Q&A sessions, slide presentations, investor days, site visits, forward guidance, analyst teach-ins, non-deal roadshows, investor conference participation, monthly and mid-quarter trading updates, IR-focused social media, investor perception studies, engagement with trade and financial media, and the majority of the content on a given IR website – are already being produced and provided on a voluntary basis on the premise that bare compliance with reporting requirements doesn’t come close to satisfying investor expectations.
Secondly, consider the situation of Foreign Private Issuers, who already face a substantially lower disclosure requirement than US Domestic Issuers trading on the same US exchanges: many of those companies voluntarily bear the burdens of robust quarterly reporting and proactive IR because they understand it to be a worthwhile exercise, if sometimes a frustrating one.
And as for the thought experiment: If you are of the view that a transition from quarterly to biannual reporting is an obvious negative development, would you similarly be in favor of increasing reporting frequency to monthly? Weekly? The point is not that the frequency is irrelevant, but instead that the frequency in and of itself might not be the factor that we’re reacting to.
So If Not More Frequent Mandated Reporting, Then What?
I would suggest that the periodicity here is – at best – a question of secondary relevance to the effective conveyance of data and insights that the finance community needs to make a well-informed investment decision. I would further suggest that a shifting of the regulatory requirement could actually make it even easier to identify those companies for whom IR and transparency are (or are not) priorities.
Of course, quarterly reporting should be understood as partially a compliance matter, and one with a hard, unforgiving lower bound. In any reasonable conception of best-practice IR, though, regulatory compliance is a foundational component upon which quite a lot else needs to be constructed before anybody should be expected to place a buy order.
Fundamentally, the relevant question for issuers is and should continue to be a different one, which I typically put to clients as follows: Have we done our part so that what the investors think they are buying is in fact what we are selling?
And then, as a derivative matter, if the frequency (or infrequency) of mandated reporting (or anything else!) is exerting pressure such that what a reasonable investor perceives might not accurately present the actual state of affairs or the bigger picture context, what can we do from a communications perspective to effectively counteract that pressure in a consistent and effective manner? This and other similar challenges are of a type that we in the IR world grapple with on a near-daily basis, and it’s our responsibility to find a solution that respects regulation without treating bare compliance as a sufficient threshold.
For these reasons, I would wager that even if there are fewer financials at the back end of some earnings press releases, most publicly traded businesses who intend to remain in good standing with investors are going to find themselves communicating to the market a lot more than twice a year, no matter the requirement.
See you on the (already voluntary!) Q3 conference calls!
