On the White House lawn before he boarded a helicopter for the Hamptons and his New Jersey golf club for the weekend, reporters had the opportunity to lob a few questions at the president. While most of the questions were about security clearances and the criminal trials of his former staff, a different topic suddenly emerged in connection with an early morning tweet about quarterly reporting. The president said that, in his discussions with leaders of the business community regarding ways to improve the business environment, Indra Nooyi, the outgoing CEO of Pepsico, had suggested that one way to help business would be to trim the periodic reporting requirements from quarterly to semiannually. The argument is that the change would not only save time and money, but would also help to deter “short-termism,” as companies would not need to focus on meeting analysts’ expectations on a quarterly basis at the expense of longer term thinking. (For more on short-termism, see, e.g., this PubCo post.) He agreed that “we are not thinking far enough out,” and had asked the SEC to look into it.
As you’ve surely read and heard, there’s been a tremendous amount of hand wringing, particularly at the agency and congressional levels, about the steep decline in the number of public companies and IPOs. For example, in congressional testimony in 2017, SEC Chair Jay Clayton expressed concern regarding the decline in the number of public companies, contending that it is Mr. and Ms. 401(k) who bear the cost of this trend because they now have “fewer opportunities…to invest directly in high quality companies.” (See this PubCo post.) The topic has also been taken up by various House committees, SEC advisory committees and SEC forums, as well as by securities and industry organizations. (See this PubCo post, this PubCo post and this PubCo post.) However, in this article, a Cambridge professor cries “nonsense”: the primary dangers to public company status, such as buyouts by private equity and a recent bias against conducting IPOs, do not pose “an existential threat to the American public company.” While there are certainly fewer public companies than in decades past, “the public company remains as crucial a feature of the American economy as it has ever been.”
SEC enforcement action for materially misleading projections in the face of red flags and other actions
In case anyone needed a reminder from the SEC, this case against Sonus Networks, its CFO and VP of Sales may well serve as one: per the SEC’s Associate Director of Enforcement, a company needs to have a “reasonable basis” if it makes public projections or estimates about future financial results: “The investing community expects that when companies choose to provide public financial projections, there is a reasonable basis underpinning those projections….When a company ignores red flags or takes steps to make public financial projections inaccurate we will take appropriate action.”
Corp Fin has just posted A Small Entity Compliance Guide for Issuers that summarizes the recent amendments to the definition of “smaller reporting company” and related amendments. (See this PubCo post and this Cooley Alert.) The Guide also provides some clarification regarding timing and transition to the new definition.
And here for your weekend reading pleasure is another Cooley Alert: SEC Expands Eligibility for Smaller Reporting Company Status. Very relaxing!
You’ve got to just love the irony: the SEC’s amendments mandating the use of Inline XBRL aren’t even effective yet, and experts at an accounting conference have declared XBRL “nearly useless as an investment tool,” and “all but unnecessary.”