Former President Donald Trump has, intentionally or not, revived and complicated the debates over corporate financial reporting in the United States. He calls for a bold change, moving private companies from public quarterly reporting. This Administration proposal would make that change, switching to biannual rather than quarterly financial disclosures. For any finality, it would require approval from the Securities and Exchange Commission (SEC).
Trump’s push for a six-month reporting system is rooted in a desire to provide companies with greater operational flexibility and reduce costs associated with frequent reporting. He hopes this change will allow managers to spend time more effectively managing their businesses. It will release them from the tyranny of having to hit a quarterly deadline. In 2018, he encouraged the SEC to study this alternative approach, touting its prospective benefits.
“This will save money, and allow managers to focus on properly running their companies,” Trump stated.
In fact, quarterly reporting has been the norm for publicly traded companies in the U.S. since the 1970s. Companies are required to report their earnings every quarter to remain in good standing. This approach provides immediate feedback on emerging market trends. It spotlights the pandemic’s role in changing travel demand patterns, infrastructure loan losses, and new trends in such transport tech as artificial intelligence. This, say critics, results in the short-term results delivery pressure that is killing the number of U.S. public companies. Too many companies are scared to IPO as they do not wish to face the onerous nature of a quarterly disclosure regime.
In doing so, Trump has made his case against quarterly capitalism the leading Trumpian case in a remarkably excellent and overdue critique of American corporate management practices. “Did you ever hear the statement that, ‘China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis? Not good!” he noted, highlighting what he perceives as a fundamental difference in strategic vision between U.S. firms and their Chinese counterparts.
Fostering this patience and steadiness is exactly the action that the Long-Term Stock Exchange (LTSE) is committing to. They’re preparing to lobby the SEC for a change in these required reporting requirements. The LTSE has gained support from well-known investors including Andreessen Horowitz and Founders Fund. Its intention is to do away with the need for quarterly earnings releases altogether, allowing firms the option to disclose their results once every six months instead.
If this proposed change were to become reality, it would have profound effects on how corporate performance is judged and understood. Critics caution that this change could postpone knowledge of economic changes for many different sectors. This shift tends to hide early warning signs of financial distress.
It’s the SEC’s turn As the contentious debate continues, all eyes are fixated on the SEC. Will it lay the foundation for moving to six-months reporting and revolutionizing the practice of corporate finance in the US.