Biannual reporting proposal divides IR pros

Should President Donald Trump's suggestion that public companies report earnings every six months come to pass, financial comms pros say it would result in a significant shift of the IR function's workload.

Photo credit: Getty Images
Photo credit: Getty Images

The Securities and Exchange Commission has required public companies to report on a quarterly basis since its inception in 1934.

But President Trump asked the SEC to study a half-year schedule after speaking with outgoing Pepsi CEO Indra Nooyi, who is set to retire October 3.

She was among the global business leaders at a dinner the former celebrity businessman hosted at his private golf club in Bedminster, N.J.

"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," Trump tweeted. "That would allow greater flexibility & save money.’"

It would harmonize the U.S. with European financial markets, which made quarterly reporting optional in 2013. Proponents also argue it would help counter short-termism.

They argue corporations are nixing investments in areas such as employee compensation and research and development, which would benefit long-term corporate health, in favor of short-term gains for investors.

Short-termism is also blamed for the controversial practice of share buybacks, which recent studies have blamed for income and wealth inequality.

But financial comms pros are divided on the proposal.

"I don’t think it’s beneficial for companies to report less on financials, because you would lose some transparency," says Victoria Sivrais, founding partner, Clermont Partners. "We also have a lot of regulations in the U.S. compared to Europe, such as Regulation FD, which would make implementation difficult."

Regulation FD (Full Disclosure) aims to eliminate "selective disclosure" by forbidding a public company from disclosing material information to institutional investors and analysts before the public.

However, Alex Wellins, cofounder and managing partner of Next Fifteen-owned The Blueshirt Group, thinks biannual reporting is a good idea.

"Companies shouldn’t run their business for quarterly results," he says. "Ultimately, you want investors and analysts aligned with the way CEOs and CFOs think about the business, which is a longer-term view."

A PRWeek poll also speaks to the decisiveness of the proposal among comms pros.

At the time of this article’s publication, just over 54% of respondents believe it would help corporations hit their long-term goals, while almost 46% contend investors need quarterly reports to make informed investment decisions.

Potential impact on IR function

Regardless of their position, pros tell PRWeek biannual reporting would be a significant change on IR. On the surface, in-house teams could be scaled back, though they would likely devote more energy to other aspects of their function.

Wellins points out that semiannual reporting would reduce quiet periods, which typically last two weeks prior to the end of a financial quarter through the date a company reports results.

He says that might be positive for IR professionals in communicating their clients’ investment story, particularly as it relates to long-term strategy and focus.

"It would change the investor and analyst market calendar and theoretically allow for more time out of the quiet period," he says. "IR pros would have more time to set up meetings with analysts and investors, as well as attend conferences and conduct road shows."

On the agency side, IR pros could also benefit from companies deciding to go public that might otherwise have remained privately held.

"There are pretty significant expenses to being a public company, between $2million and $4 million every year," estimates Wellins. "Eliminating two quarters from their financial reporting could cut some of the expense that might deter companies from going public."

Sivrais agrees there wouldn’t be a material change in the amount of work IR pros need to do.

"The practice of IR has evolved significantly over the last 10 to 15 years, and it’s getting more complex every day," she points out. "Think about the move toward passive investment and ESG (environmental, social, and governance) factors. Financial reporting is a meaningful component to those things, but is only one aspect of IR at large."

She also notes that, regardless of what happens, companies are looking to move the narrative away from short-termism. She believes IR pros can play a key role in helping companies do that within a quarterly reporting structure.

"You’ll never completely get away from short-term investors, but you can help usher in more long-term support for the stock in the way you communicate and with a broader, strategic IR program," contends Sivrais. "And companies that do it best use quarterly calls as a touchpoint that they’re executing on their long-term strategy."

Challenge for smaller companies

Critics note that half-year reporting would not only reduce transparency for investors, but could also increase market volatility.

This could especially hurt middle- and smaller-cap companies, asserts Devin Sullivan, SVP, The Equity Group.

"They don’t have the broad sell-side coverage, institutional ownership, and media attention of bigger public companies," he says. "To have a six-month period where there’s no discussion of their results would likely not be beneficial for them."

And without the broader context provided by quarterly earning calls, FD disclosures could be misinterpreted and lead to more, not less trading volatility, for smaller companies, says Sullivan.

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