A Quarterly Reporting Rule for Any Other Reason...

The Securities and Exchange Commission has been taking heat for its recent proposal to allow companies to file semiannual instead of quarterly regulatory filings. The change would water down the transparency requirements in the Securities Exchange Act of 1934, enacted to try to prevent another stock exchange crash like the one that happened in 1929.

The Trump-backed proposal attracted a deluge of negative comments from May through July 6, when the public comment period closed. You might even call the response “an investor revolt,” as a headline in Investment News put it, citing in part opposition from the influential trade organizations Investment Adviser Association, CFP Board, and the CFA Institute.

The Trump administration has argued that the proposal would save businesses money and encourage long-term thinking.

Combating short-termism is a worthy goal. However, given the transactional approach of the Trump administration and the short-term thinking of companies that have chosen to appease the White House instead of pushing back against harmful economic policies, it’s a bit of a stretch to believe that this proposal is really about short versus long term thinking.

What interests me, however, is how starkly this conversation contrasts to one in which I was involved beginning more than a decade ago about how to encourage longer term thinking and minimize the damage that short term thinking does to business value.

Those of you who have read The Gray Rhino may recall that there’s a whole chapter on long-term thinking and various proposals to get investors to take a longer-term perspective. I have been in the room for many conversations on the subject, both at World Economic Forum Annual Meetings at Davos and on the sidelines, about the economic harm that short termism causes and how to combat it.

It just so happens that one of the ideas under discussion happened to include the idea of moving away from quarterly reporting.

One of the leaders of that debate in the business community was Paul Polman, whom I respect immensely as someone who does not just “talk the talk” but actually “walks the walk” when it comes to responsible corporate stewardship. He famously ended quarterly reporting and guidance when he began his ten-year tenure at Unilever in 2008. (Listed on the London and Amsterdam Stock Exchanges, the company was not subject to the US quarterly reporting rules.)

Polman also changed the company’s compensation structure to reward longer-term performance. Though Unilever’s share price fell by 8 percent when the no-more-quarterlies policy was announced, the company delivered 18 percent continuous return on invested capital over the next decade.

Polman wrote about this recently on LinkedIn: “When I announced we would end it on my first day at Unilever, it was not to save money or hide results, but to create the conditions for leaders to think in years, not quarters, and to make decisions that would outlast their tenures.”

Research shows that including long-term considerations in decision making is good for performance.

So, yes, I heartily support changing incentives to encourage long-term thinking.

I am skeptical, however, that an aversion to short-termism is the real motivation behind the new proposal, as the Trump administration has claimed.

As I wrote in You Are What You Risk, research suggests that people’s perceptions of risk change depending on their moral judgments about the person engaging in the behavior in question. In short: motivation matters.

The current US administration is famously allergic to transparency. Examples range from Trump’s fight to shield his tax returns from public eye (despite tradition that presidential candidates disclose); to the removal of facts and relevant information from government websites; cuts to key weather, climate, and ocean data tracking activities. That tracks with making it easier for companies to hide information they don’t want investors or regulators to have.

This has left me reconsidering my views on the matter.

As someone who teaches and influences public policy, I am giving considerably more thought to what various policy choices could look like in the wrong hands.

The same policy looks very different depending on the context.

Though I have only read a sampling of the public comments on the new proposed rules, it would be an understatement to say that it has left investors with some big concerns.

The Council of Institutional Investors submitted a letter opposing the rule, noting:

“[The requirement for quarterly reporting] helps ensure that important information is promptly and transparently provided to the marketplace, allowing investors to assess concrete progress against strategic goals.…[P]ermitting less frequent reporting would lead to greater share price volatility, and more intense investor focus on short-term share price fluctuations, as investors expend effort guessing how well the company is performing. As such, requiring quarterly financial reports on Form 10-Q is an important reality check for investors on stock valuation….. [W]e believe that the discipline resulting from requiring quarterly reporting keeps corporate management more accountable, in turn enhancing investor confidence in the U.S. capital markets.”

The SEC received more than more than 66,000 submissions opposed to the rule change. (Many of the submissions were duplicates, sent by group members who sent letters based on shared templates in 11 categories.) This was despite having included an incorrect email address in the call for comments.

Tzachi Zach, an accounting professor at The Ohio State University’s Fisher College of Business built a tracking tool. He has estimated that 99.2 percent of the roughly 37,000 individual letters he tracked opposed the rule.

Some of the opposition, like that from the Investment Advisor Association, proposed modified approaches, like streamlining reporting requirements:

“Rather than reduce the frequency of public companies’ periodic reports, therefore, we recommend that the Commission undertake a review of the required content of quarterly reports on Form 10-Q to identify opportunities for simplification and streamlining. Reducing unnecessary or duplicative disclosure requirements would lessen compliance burdens and costs while preserving the timely, standardized, and comparable information that investors and fiduciary investment advisers rely on to make informed decisions. In our view, streamlining the content of periodic reports, rather than reducing their frequency, would better balance the Commission’s objectives of reducing regulatory burdens and maintaining the transparency and investor protections that are fundamental to healthy public markets.”

The current batch of feedback did include some statements arguing for the move away from quarterly reporting.

The libertarian Cato Institute expressed somewhat different reservations about the “right decision for the wrong reason.” Norbert J. Michel and Christian Kruse argue that SEC Chairman Paul Atkins has it right: “How often a company reports to its investors should be a decision between the company and its investors, not the government…”

The National Association of Manufacturers supports the rule change, noting that:

“It would also help companies with limited accounting support and make domestic manufacturers more competitive with companies in Europe and Asia where twice-a-year reporting is generally allowed.”

Eli Lilly wrote in favor of the proposed rule, arguing that it would cut in half the administrative burden of formally filing with the government. The company said that it would continue to voluntarily release quarterly earnings information even though it would only have to formally file twice a year instead of four times a year.

The SEC itself estimated that the change would save companies an average of $198,000 a year, with the benefit falling primarily on smaller companies. (Some observers, including Los Angeles Times columnist Michael Hiltzick, have questioned how much the streamlined reporting requirements would save.)

Interestingly, the SEC floated a similar proposal in 2018, during the first Trump administration, and shortly after the intense debate in the business community over the issue.

In contrast to the flood of opposition to the 2026 proposal, only 43 percent opposed the 2018 proposal, CFO Dive has reported. That was still enough to sink the proposal.

To be sure, the volume was nowhere near the same. Professor Zach’s analysis of 89 letters showed 36 against, 36 conditional support, 11 in favor, and six taking no position.

The comments back then were strikingly different. For one thing, they followed a few years of active corporate discussions about the merits of long-term thinking and the potentially negative effects of quarterly reporting.

Some research at the time indeed suggested that ending quarterly reporting could be a good idea. A team of Japanese scholars, Yuya Koga and Tomoyasu Yamaguchi, concluded in a 2017 paper that mandatory quarterly reporting can create unintended consequences, namely, encouraging what they call “myopic behavior” by managers: that is, extremely short-term choices.

Berkshire Hathaway’s Warren Buffett and JPMorgan Chase CEO Jamie Dimon argued in favor of publicly listed companies ending quarterly earnings guidance. They aligned with the position of the Business Roundtable, an association of nearly 200 chief executive officers of large U.S. companies, and other business leaders.

FCLT Global, a corporate membership organization that mobilizes companies and investors to focus capital on long-term value creation strategies, weighed in:

“The United Kingdom and European Union have, for some time, permitted companies to report at a lower frequency, complemented by requirements for timely disclosure of material events. Experience in those markets does not support the concern that reduced reporting frequency leads to a deterioration in transparency. What it does suggest is that investor protection can be maintained when companies are not forced to organize all external communication around artificial 90-day intervals.”

There are compelling arguments on both sides of the argument.

It remains to be seen whether some good intentions in this case will pave the path to hell.

If the overwhelming opposition to the proposed rule change sways the rule makers, we may never find out. If the rule makers move ahead anyway (as many observers believe will happen) only time will tell whether the results are positive or negative.

That will depend on what CEOs and boards decide to do with their newfound freedom.

Promoting long-term value creation is a worthy goal. This proposal is only one possible policy tool in that arsenal. How much change would it catalyze on its own is up for debate. Other tools may be more effective —say, tax policy that more clearly favors longer-term holdings than the current capital-gains regime. (One year counts as “long-term”? Compared to flash trading, sure. But seriously?)

The most important thing about this debate is that the same policy appears in a very different light depending on public trust in the government proposing and administering it.

The public response says it all.