Why Trump’s push to scrap quarterly earnings caused Wall Street to ‘freak out’
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Summary
Changing the game
President Trump called on market regulators to change the required interval at which earnings are reported.
Years in the making
During his first term, Trump asked the SEC to study the impact of moving to semi-annual reports. Now, the regulator is making it a priority.
What a process
Changing reporting requirements requires a multi-step process by the SEC or legislation from Congress.
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Full story
President Donald Trump has tasked regulators with changing the way public companies have operated for more than 50 years. While the shift to move away from quarterly earnings reports has significant support from officials, the industry is divided on whether the move would reduce shareholder transparency or maintain business as usual on Wall Street.
Trump calls for changes to reporting
“Subject to SEC approval, companies and corporations should no longer be forced to ‘report’ on a quarterly basis, but rather to report on a ‘Six (6) month basis,’” Trump wrote last week on Truth Social.
“This will save money and allow managers to focus on properly running their companies,” he continued. “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???’”
The Securities and Exchange Commission, the agency tasked with protecting investors and promoting fairness in securities markets, will take up the president’s request.
“I welcome that posting by the president, and I have talked to him about it,” SEC Chair Paul Atkins said in an interview with CNBC’s “Squawk Box” on Friday. “In principle, I think to propose change in what our rules are now, I think would be a good way forward, and then we’ll consider that and move forward after that.”
Danielle DiMartino Booth, CEO of QI Research, said it has already affected Wall Street.
“I applaud this,” she told Straight Arrow News. “It certainly did freak out Wall Street, because there’s an entire media machine that runs every three months. Earnings season is like baseball season: It’s open, play ball.”
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Earnings season typically consists of several weeks each quarter when many of the nation’s largest companies release financial results.
This isn’t the first time Trump has called for changes to reporting frequency. During his first term, he posted on Twitter that top business leaders had urged him to “stop quarterly reporting & go to a six-month system.”
At the time, Trump called on the SEC to study the proposal. When SAN reached out to the commission for this story, a representative responded with a link to a call for public comment issued in December 2018.
DiMartino Booth, a Wall Street veteran, said there is truth to the idea that quarterly results encourage shortsightedness.
“As an individual who sits in the C-suite or on a board, you’re not able to plan for the longer term,” she said. “You’re not able to make investments in productive endeavors because you’re so concerned about what your earnings per share are going to be every three months, which happens to determine the size of your bonus.”
What is an earnings report?
Every publicly traded company is required by the SEC to publish earnings reports four times per year. They provide data on revenue, expenses and profit — giving shareholders a snapshot of the company’s health. Firms release one annual report and three quarterly reports.
As part of quarterly reporting, many companies hold investor calls, during which analysts question executives.
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Companies use quarterly earnings reports to inform shareholders of their financial health. These reports feature data including revenue, expenses and profit.
Some firms also issue “guidance,” which gives an estimate of future revenue, expenses and profit. Guidance is not required by regulators, it but has raised concerns that it encourages short-term thinking.
In June 2018, JPMorgan Chase CEO Jamie Dimon and Berkshire Hathaway Chairman Warren Buffett cowrote an op-ed in The Wall Street Journal encouraging public companies to stop providing quarterly earnings-per-share guidance. Focusing on the next quarter “often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability,” they wrote.
“I think this is a very rare instance of Warren Buffett agreeing with the president,” Di