Should the U.S. move to a six-month financial reporting calendar from the current quarterly one as President Donald Trump mooted in an early Friday tweet?
Not really, according to many investors and analysts, who argue that shareholders need more disclosure from the companies they invest in and not less. And while many executives — Elon Musk,[1] anyone? — argue that the burden of striving to meet quarterly estimates can lead to short-termism on the part of managers and shareholders, there’s no guarantee that a different reporting schedule would change that.
“If the charge is that companies are managing for short-term expectations, what will be the difference between a three-month cycle and a six-month cycle? Nothing,” said Leigh Drogen, founder and chief executive of Estimize, a platform that crowdsources earnings estimates and economic forecasts.
“A six-month cycle will also lead to increased volatility given less access to hard information regarding the performance of companies,” Drogen said.
Trump said that the idea of changing reporting requirements came from outgoing PepsiCo Inc. PEP, +0.62%[2] Chief Executive Indra Nooyi, a longtime critic of the current system who has argued that the pressure to meet short-term goals clouds longer-term targets. The president has asked the Securities and Exchange Commission to review the issue.
“I have the results to show for long-term management and the scars to show for short-term management, “Nooyi told a panel at the World Economic Forum’s annual meeting in Davos this year, as Business Insider reported.[3]
The executive was harshly criticized by analysts during the period in which she worked to move PepsiCo away from sugary drinks and salty snacks toward healthier products with her “Profits with Purpose” strategy. After her first five years as CEO, there were calls for her ousting as sales slowed, profits missed targets and the stock languished.
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Nooyi suggested her 12-year tenure as CEO would offer a good case study for her insistence on taking a longer view. PepsiCo has beaten profit estimates for the past 20 quarters, according to FactSet, as her strategy paid off and got the company back on a growth track.
SEC Chairman Jay Clayton said his agency has already implemented measures that aim to “encourage long-term capital formation while preserving, and in many...