Yesterday, the SEC Division of Corporation Finance hosted a roundtable on the impact of short-termism on U.S. capital markets and whether modifications should be made to the reporting system to address these impacts. In December, the SEC published a request for comment on these topics, specifically with respect to earnings releases and quarterly reports. At yesterday’s roundtable, the SEC reiterated that the comment period is still currently open. The roundtable was comprised of two panels, both featuring a variety of market participants including investors, issuers, attorneys, accountants, academics and governance experts. Panelists voiced their own perspectives and opinions, in representing their respective fields and interests.
To kick-off the event, SEC Chairman Jay Clayton stressed the importance of focusing on the long-term interests of Main Street investors, a point he made before in his announcement of the roundtable in May (discussed on our blog here). He also added that he does not believe there exists a tradeoff between long-term management and liquidity, and would like to explore options at the SEC that are complementary to both issues.
SEC Commissioner Elad Roisman echoed Chairman Clayton’s emphasis on the long-term interests of investors and further emphasized that consideration must be given to whether incentives exist in the marketplace to drive a focus on short-term or long-term gain.
The first panel focused on discussing the causes of a focus on short-term results in U.S. capital markets and the impact of this focus, such as the marked decline in initial public offerings. The panelists also considered ways in which the SEC could encourage long-termism, providing several suggestions, including:
- Making it clear that companies are not required to produce quarterly earnings guidance;
- Improving agency guidance on disclosures; and
- Reviewing and assessing current reporting requirements.
The second panel explored the SEC’s periodic reporting system and potential changes to the system that could foster a longer-term focus. Several panelists described the burden quarterly reporting places on public companies and debated the merits of reducing the frequency of disclosure, particularly for smaller issuers. Proponents of this reduction in frequency cited it as a way to reduce public company costs and potentially ease some barriers for private companies considering going public. Panelists who opposed this view explained the importance of quarterly reporting to investors and cautioned against relaxing the filing requirements. Chairman Clayton interjected at one point to express his own concerns with changing the frequency of disclosure; a change that he believed could cause an asymmetry of information and open the door for additional problems.
In addition to voicing opinions on the quarterly reporting system, the second panel emphasized the earlier panel’s point that companies are not required to produce quarterly earnings guidance and the SEC should discourage the practice, which was cited as contributing to short-term behavior.
It remains to be seen what steps the SEC will take in response to the various suggestions offered by the panelists.
For more information on the roundtable and a full list of panelists, access the event page here.
Legal assistant Sarah Foster contributed to this post.