My fellow Wharton grad Marty Lipton, the scion of venerable M&A law firm Wachtell Lipton and inventor of the poison pill, is adding to the drumbeat of folks suggesting that quarterly reporting by public companies might be bad. Why? Because it forces companies to focus much more on short-term results, discouraging capital investment and strategic thinking, especially in this era of activist investing. Who else agrees? Al Gore. The European Union eliminated mandatory quarterly reporting for listed companies in 2013.
Perhaps a Compromise is in Order?
It was not always thus here in the US. Originally, the SEC only required annual reports. In the 50s, it went to twice a year, but it was not until 1970 that quarterly reporting was required. The argument to reform this is that the pressure to “meet or beat” the expectations of the Street every quarter does not allow management time to breathe or think long-term. Others say we need to see trends as they are occurring...before it’s too late to react.
Activists do serve a purpose - at times, they can shine a light on good companies with bad management. And they would continue to be able to do their thing whether or not quarterly reporting continued. So, how about a compromise, wherein we go back to reporting every six months? Or, we at least give emerging growth companies a break on their compliance costs. Is anything likely to change? Wouldn’t bet on it.
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