Corp Fin has recently focused on the issue of corporate reporting and short-termism. At the end of last year, the SEC posted a “request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.” (See this PubCo post.) Following up, Corp Fin then organized a roundtable, held last week, to discuss the issues surrounding short-termism. The roundtable consisted of two panels: the first explored “the causes and impact of a short-term focus on our capital markets,” with the goal of identifying potential market practices and regulatory changes that could promote long-term thinking and investment. In part, this panel developed into a debate about whether short-termism was actually creating a problem for the economy at all. In that regard, several of these panelists were quick to cite the oft-cited academic study revealing that “three quarters of senior American corporate officials would not make an investment that would benefit a company over the long run if it would derail even one quarterly earnings report.” (See this PubCo post and this article in The Atlantic.) Could the reason be a misalignment of incentives? The second panel was centered on the periodic reporting system and potential regulatory changes that might encourage a longer-term focus in that system. Does the current periodic reporting system, along with the practice of issuing quarterly earnings releases and, in some cases, quarterly earnings guidance contribute to or encourage an overly short-term focus by managers and other market participants? On this panel, the headline topic notwithstanding, the discussion barely touched on short-termism; rather, the focus was almost entirely on regulatory burden. At the end of the day, is the SEC seriously considering making changes to periodic reporting?
Right before the SEC open meeting originally scheduled to discuss the issue, the SEC has posted a “request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.” (The matter has been deleted from tomorrow’s agenda.) According to the press release, the request for comment solicits “public input on how the Commission can reduce burdens on reporting companies associated with quarterly reporting while maintaining, and in some cases enhancing, disclosure effectiveness and investor protections. In addition, the Commission is seeking comment on how the existing periodic reporting system, earnings releases, and earnings guidance, alone or in combination with other factors, may foster an overly short-term focus by managers and other market participants.” The public comment period will be open for 90 days following publication of the Request in the Federal Register.
(Note that the SEC also adopted hedging policy disclosure rules and likewise removed that from tomorrow’s agenda, but more on that tomorrow.)
Here’s a reminder from the SEC: interim financial statements included in Forms 10-Q are required to be “reviewed” by outside auditors. On Friday, in a first enforcement proceeding of its kind, the SEC announced charges against five companies that had filed their 10-Qs with their quarterly financial statements prior to review by their independent external auditors.
Will there be a JOBS Act 3.0? The JOBS and Investor Confidence Act of 2018 just passed the House by a vote of 406 to 4, so, even though Senators may often be chary of jumping on the House bandwagon—remember the doomed Financial Choice Act of 2016 and then 2017— the overwhelming and bipartisan approval in the House still makes the odds look better than usual.
by Cydney Posner I loved this column from Compliance Week by Scott Taub, former deputy chief accountant and former acting chief accountant at the SEC. It’s full of common sense ideas about how to shorten 10-Ks and 10-Qs, both of which seem to grow exponentially longer every year. Making them shorter […]
by Cydney Posner Yesterday, the SEC announced that it had sanctioned ten companies (generally, smaller reporting companies traded on OTC Link) for failing to make required Form 8-K disclosures related to financings and unregistered stock sales. Individual penalties were either $25,000 or $50,000, being paid to the SEC in installments.