Donald Trump’s endorsement this week of a six-monthly reporting cycle for US-listed companies is far from his worst idea. Switching from quarterly earnings could encourage more strategic thinking by removing the three-monthly temptation for companies to “beat” analysts’ expectations. Unfortunately, it is exactly this strategic mindset that the US president lacks.
His preference for twice-yearly reporting is one of a series of deregulatory measures that he or his officials have announced, threatened or hinted at recently. Together they would work against corporate transparency, set back shareholder rights, push the balance of boardroom power too far towards chief executives and, at worst, open the door to self-dealing or fraud.
Since taking over in January, Securities and Exchange Commission chair Paul Atkins has aimed to cut “compliance burdens” on companies. Last week, on a visit to Europe, he told the FT the SEC would in future alert businesses about technical violations rather than first sending regulators to “bash down their door”.
Atkins has also taken issue with EU corporate sustainability directives and threatened to ban non-US companies from using International Financial Reporting Standards if rulemakers continue to press for disclosures on issues such as climate impact. In a speech last week, he urged the International Accounting Standards Board to “promote high-quality accounting standards that are focused solely on driving reliable financial reporting and are not used as a backdoor to achieve political or social agendas”.
Other measures include the SEC’s decision to let oil company Exxon automate voting by retail investors so their shares are counted in favour of management unless they opt out. On Wednesday, the SEC said it would no longer block companies from public markets if they banned shareholders from filing class-action lawsuits. Atkins, a crypto advocate, has also dropped investigations against cryptocurrency platforms.
The Financial Times favours, as far as possible, common and predictable corporate standards that allow investors to compare companies in different jurisdictions and that keep the cost of capital down. Where different regulators choose different paths — for instance, in corporate governance guidelines — a live-and-let-live approach should prevail, allowing investors to choose where to deploy their capital.
A shift to six-monthly reporting would bring the US in line with other large capital markets including the UK, EU and Singapore. But a firm mandate is not essential. Setting six months as the maximum reporting period would give companies a choice of whether to report more frequently, following their investors’ preference for quarterly or even more radical and frequent financial transparency, as the technology allows.
When it comes to sustainability, many investors and companies, particularly in Europe, are already edging towards greater disclosure of climate risks. What is damaging for the environment is also potentially ruinous for companies and their investors. Europe’s “agenda” is no more political than the one Trump and his officials are pursuing to sweep sustainability considerations from corporate reporting. Their repeated message that non-US watchdogs and companies must choose the American way smacks of extraterritorial over-reach.
As for activism, many executives would welcome a reduction in pressure. But lessening overall investor and regulatory scrutiny and removing tools such as lawsuits, which US shareholders can use to hold boards to account, would give chief executives too much leeway.
In his speech last week, Atkins set out a creditable goal: to “provide clear, predictable rules of the road so that [US] innovators can thrive”. But tearing up established measures for investor protection is no way to entice long-term capital.