Trump Asks SEC to Consider Nixing Quarterly Reports

CEOs may love it, but investors say less transparency is a bad idea.

Tim Goessman/Bloomberg

Tim Goessman/Bloomberg

President Donald Trump reopened a long-simmering debate Friday by proposing that the Securities and Exchange Commission consider doing away with quarterly financial reports for publicly traded companies.

“In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. ‘Stop quarterly reporting & go to a six month system,’ said one. That would allow greater flexibility & save money. I have asked the SEC to study!” Trump tweeted Friday morning, saying he spoke with outgoing Pepsi CEO Indra Nooyi.

Nooyi confirmed she had spoken to Trump about the issue. In a statement, she argued that the short-termism associated with quarterly statements “can inhibit long-term strategy and thus long-term investment and value creation. My comments were made in that broader context, and included a suggestion to explore the harmonization of the European system and the U.S. system of financial reporting.”

“Many market participants, as well as the Business Roundtable which we are a part of, have been discussing how to better orient corporations to have a more long-term view,” she said.

Quarterly earnings reports have been attacked by BlackRock CEO Larry Fink, former presidential candidate Hillary Clinton, and many others for the short-term thinking they are said foster.


But a 2017 study led by Brookings Institution fellow Robert Pozen cast doubt on their impact on corporate behavior. Pozen and his colleagues found that European companies showed no difference in capital expenditures, research and development, property, plants, and equipment after they began to report semi-annually, which was allowed in 2014.

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Some observers suggested a cynical reason for Trump’s tweet. “Everything he does is reactionary to short-term issues that can make him look bad,” said Danny Moses, a Wall Street veteran and former FrontPoint executive who is now a private investor.

“Why would an outgoing CEO (Pepsi) be the catalyst for this request?” he wondered.

“Trump is obviously getting feedback that the third quarter earnings (July-Sept), which will be reported just prior to mid-term elections in November, are being negatively impacted by some of the ‘trade’ policies being implemented,” Moses tweeted Friday.

Many investors and analysts also criticized the idea, arguing that less transparency is a bad thing. “It’s a ridiculous idea,” said Herb Greenberg, a founder of Pacific Square Research. “Instead they should be getting rid of adjusted earnings and forward guidance.”

“Adjusted earnings,” which have become common, are a way companies get around generally accepted accounting principles they comply with when making their financial disclosures. Forward guidance, which is not mandated, creates what Greenberg calls the “meet and beat” game that often drives stock prices around earnings releases.

“I just think CEOs don’t want the pressure of prepping for quarterly reports and are using the guise of ‘short-termism’ as a scapegoat,” he said. “The only people who really benefit from this are CEOs. The losers would be investors.”

But some of Trump’s Wall Street supporters agree with him. “I personally like it,” said Anthony Scaramucci, founder of SkyBridge Capital, an asset management firm that invests in hedge funds. “I think it helps encourage more sound long-term planning at the executive level.”

Scaramucci, who remains a loyal Trump supporter even after being fired from the White House a year ago, admits that most investors are “worried about the laxity of accountability” that could occur if corporations went to semi-annual reporting.

Both Scaramucci and Greenberg were skeptical such a change will be forthcoming, however. “This is never going to happen,” according to Greenberg.

In a statement on Friday afternoon, however, SEC Chairman Jay Clayton said Trump had raised a “key consideration” for U.S. companies. The agency’s “Division of Corporation Finance continues to study public company reporting requirements, including the frequency of reporting,” Clayton said.