U.S. President Donald Trump steps off Air Force One upon arrival at Luke Air Force Base in Glendale, Arizona on Sunday.MANDEL NGAN/AFP/Getty Images
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
If you manage a publicly traded company, U.S. President Donald Trump’s latest proposal to do away with quarterly financial reporting in favour of semi-annual disclosures may seem like an early Christmas present.
If you’re an investor, you may have a somewhat Grinchier view.
In a post last week on Truth Social, his social media platform, Mr. Trump said that subject to approval by the U.S. Securities and Exchange Commission, companies should only be required to report financial results every six months rather than the quarterly cycle that has been in place for almost a century.
“This will save money and allow managers to focus on properly running their companies,” Mr. Trump said. “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!!!”
Whatever else you might think of Mr. Trump, he’s not wrong on this one. It is his latest assault on an overly onerous U.S. regulatory environment that is based on outdated law and hamstringing American companies faced with an increasingly competitive global marketplace.
Opinion: Trump is wrong. Nixing quarterly reports won’t fix Wall Street’s ‘short-termism’
In the last 30 years, more companies have avoided going public because of increased scrutiny and compliance costs each quarter. The number of publicly listed companies in the U.S. has fallen to fewer than 4,000 in 2020, from more than 7,000 in 1996.
“Our public markets are atrophying,” U.S. Treasury Secretary Scott Bessent said in an interview with CNBC last week. “And this might be one way to bring back and cut costs for public companies without harming investors.”
To Mr. Bessent’s point, investor security is the other side of the coin. How significant are the downside risks of what many see as a loosening of governance rules designed to keep companies and their leadership teams on a tight leash – and hold their feet to the fire when necessary?
Even the most skeptical investor would agree the amount of time, money and resources companies spend to feed the quarterly reporting beast is enormous.
If you have ever been involved in preparing quarterly reports, regulatory filings and investor conference calls, you know it is a full-on cottage industry within the public company realm.
Markets can decide reporting ‘cadence,’ U.S. SEC Chair says, as Trump pushes to end quarterly results
At a strategic level, too, there is a strong argument to be made that biannual reporting would allow company management to focus on long-term goals rather than short-term metrics.
Further, some say a change in reporting requirements might encourage more foreign companies to list on U.S. exchanges. Most European exchanges, for example, have biannual reporting requirements. Companies listed in China report every quarter, but those listed in Hong Kong report twice a year.
The fact that the U.S. seems out of step with the world on this issue should come as no surprise. The current regulations are based on the Securities Exchange Act of 1934, which empowers the SEC to require quarterly financial reports from U.S.-listed companies.
The world has changed a lot since then, especially the dynamics of the world’s financial markets. Remember the days when a two- or three-point swing in the Dow Jones Industrial Average was newsworthy? Remember when the Dow passed 2,000, then 3,000, and 10,000?
Now, single daily swings of hundreds and even thousands of points on the Dow are commonplace. And last week, the Dow crossed 26,000.
Donald Trump’s erratic policies have been great for Canadian stocks
While the Dow is not the be all and end all, it is a key benchmark for the changing dynamics in the financial markets. Having its component companies tied to regulations almost a century old – and causing a drag that global rivals don’t face – is like having them run a race with cinder blocks tied around their necks.
It remains to be seen if the SEC moves to implement Mr. Trump’s suggestion. It’s not the first time he’s floated it. In his first term, he made similar noises, but they fell on deaf regulatory ears.
If Mr. Trump is successful in swaying the SEC he shouldn’t stop there. He needs to overhaul the U.S. antitrust laws next.
Those laws are based on the Sherman Anti-trust Act of 1890, a federal antimonopoly law aimed at the country’s burgeoning oil industry at the time.
But they are still used today as way for government to overreach and manipulate markets. Look no further than the high-profile antitrust actions against Google and Microsoft – actions that basically punished the tech leaders for being smarter than rivals in a market much different than turn-of-the-century America.
If Mr. Trump really believes in the exceptionalism of U.S. companies, he needs to continue to dismantle the choking regulations that put those companies at a disadvantage – especially those regulations based in laws that are ancient in terms of modern global business.
link