In two recent articles, Thompson Coburn partners Barry Fischer and Michele Kloeppel served as go-to media sources on the SEC’s proposal to make quarterly reporting optional for public companies, offering insight into how the change could affect issuer behavior, investor perception and regulatory compliance.
In a Corporate Compliance Insights article, Barry pointed to a potential unintended consequence tied to how companies would time their reporting elections. “Because the Form 10-K can be filed as few as 40 days before the first quarterly report would be due, a company could theoretically elect semiannual reporting to avoid disclosing poor first-quarter results,” he said.
He noted that investor reaction could undermine that approach: “If the market equates the election to change to semiannual reporting with an attempt to avoid disclosing bad financial news. The issuer’s stock price is likely to decline on the making of the election, which could dis-incent companies from making the election.”
Barry also explained that emerging growth companies could be among the earliest adopters. “Emerging companies without a long reporting history will face fewer external pressures to retain quarterly reporting, and investors have fewer concerns about the financial performance of companies not yet turning a profit, making those companies natural early adopters.”
Michele said that reducing the frequency of formal reporting could come with tradeoffs in transparency and reliability.
“There really is no substitute for the provision of periodic financial reports that is reviewed by outside accountants,” adding that reduced formal disclosure could lead to market speculation based on inaccurate alternative indicators. She emphasized that “the decision involves more variables than potential cost savings alone. Whether that change makes sense for a company will depend on a host of factors, including investor pressures, peer elections, insider trading considerations, potential cost savings in financial reporting, potential litigation exposure due to delayed disclosures of bad news and the impact on various public company programs.”
Read the full article in Corporate Compliance Insights here.
In a separate article by Governance Intelligence, Barry and Michele further clarified how the proposal would affect reporting obligations. Barry said that less frequent periodic reports could also sharpen questions about timing and uneven disclosure. “It is possible that less frequent reporting could allow companies to delay the delivery of bad financial news,” he added, particularly if an issuer can elect semiannual reporting at the Form 10-K stage and “eliminate its first quarter filing as late as 40 days before it would be otherwise due.”
Michele noted another complication: “The proposal would make semi-annual reporting optional, unlike in the UK and EU where the requirement was effectively made mandatory,” she said. “There likely will be reticence for companies to go to a semi-annual standard until their peers do.”
On accountability, Michele said that even with half-yearly filings she would “still expect continued quarterly board and committee meetings” and that management would continue to provide reporting to directors “consistent with current practice.”
Read the full article in Governance Intelligence here.
