Why Leaders May Keep Quarterly Reports But Skip Earnings Forecasts.
By Michael Posner
President Donald Trump has proposed reducing the frequency of corporate financial reporting requirements from four reports a year to two. He made the same suggestion in 2018. Trump justifies this idea by saying, “This will save money and allow managers to focus on properly running their companies.” He is only half right: the reduced reporting will indeed save companies money. But at the same time, it will reduce transparency, denying investors, government regulators, and the public access to essential information that is of broad public concern. This is yet another example of the administration’s efforts to roll back data collection and dissemination on a wide range of topics.
The Securities and Exchange Commission (SEC) has required publicly traded companies to file quarterly financial reports since 1970. These reports provide a snapshot of financial performance, a collection of unaudited financial statements, such as balance sheets, income statements, and cash flow statements. These numbers help investors assess a company's growth, profitability, and financial health. But in the wake of the president’s announcement, the SEC now says that it is prioritizing his proposal “to further eliminate unnecessary regulatory burdens on companies.” This is the latest in a series of administration steps aimed at reducing government oversight of corporate actions.
It’s important to separate the two different aspects of the corporate reporting process. The first is the role these reports play in generating data that investors use to make quarterly earnings forecasts. These forecasts reinforce the investment model for many on Wall Street, prioritizing the maximization of short-term shareholder profits at the expense of a company’s long-term value. Extending the reporting period from three to six months will do very little to correct this investor-driven short-termism, which disincentivizes C-suite executives who wish to invest in environmental and social safeguards.
Read the full Forbes article.
___
Michael Posner is the Jerome Kohlberg Professor of Ethics and Finance, Professor of Business and Society and Director of the NYU Stern Center for Business and Human Rights.