If you’ve been following the nifty “comment letter tracker” for the SEC’s semiannual reporting proposal put together by Professor Tzachi Zach, you can see that the number of comments are very high – and that a large percentage of comment letters submitted are opposed to the SEC’s proposal. Of course, the comment letter process is not a democracy and there’s still a pretty strong likelihood that the SEC will pass the proposal.
As noted in this blog, a few companies have expressed an interest in foregoing quarterly reporting – but most companies have not tipped their hand about what they would do if the SEC adopts the proposal.
To understand the SEC’s proposal from a finance person’s perspective, I found this blog from “The CFO Desk” to be interesting. Here’s an excerpt:
“The semiannual proposal is the opposite in every respect. It compels nothing, forbids nothing, and hands the decision to you.
It also blurs two different acts. Filing a 10-Q is compliance. Telling the market how the quarter went is communication, and nothing in either proposal touches it. A company could stop filing and still publish an earnings release, still report its operating metrics, still hold the call, still give guidance. Drop the filing, keep the conversation. That is probably where a good number of companies land, and it is not the choice the debate has been framed around.
Which matters, because the analysts are not going anywhere. Sell-side models run on quarters and will keep running on quarters whether or not companies publish them. A quarter you do not report is not a quarter nobody models. It is a quarter modeled without you. Consensus still forms — it just forms on less.
Less disclosure does not lengthen anyone’s horizon. It widens the error bars around the same one. The comment record could hardly be more different. Where the filer status docket drew a few dozen letters, this one has attracted something over 190,000 submissions, roughly 99.6% of them opposed — more, by one count, than any rulemaking in the Commission’s history.
But not all comment letters are counted equally. The CFA Institute, which opposes the proposal, says so plainly in its own commentary — one letter from a major issuer or trade association can carry more weight than scores of others. The 99.6% describes headcount, and headcount here is overwhelmingly retail. The couple of hundred letters in support include business associations and large issuers, and those are the ones written to be weighted.
The institutional split runs along the line you would expect. The CFA Institute and the Council of Institutional Investors filed against. The Business Roundtable filed in support, on the long-standing argument that quarterly cadence drives short-termism.
The people who read the reports want them. The people who file them are less sure.”
