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 While British investors endorse what they perceive as a measure
against short-termism, their counterparts across the Atlantic are
concerned that less frequent company reports will mean less
transparency.
In a world of increasing financial regulation, Britain is bucking
the trend by accelerating EU plans to relax the current reporting
rules, which are especially onerous for small firms.
"A desire to not disappoint the markets, when you are speaking to
the markets every three months, will inevitably lead to the business
making short-term decisions to the detriment of long-term
shareholders," said Kevin Murphy, a fund manager at Schroders, one
of Britain's biggest asset management companies.
All eight British fund managers interviewed by Reuters for this
article supported the rule change.
Some corporate heavyweights have already made moves away from the
treadmill of quarterly reporting.
Germany's Porsche <PSHG_p.DE> was involved in a high-profile dispute
between 2001 and 2008 with Deutsche Boerse, operator of the
Frankfurt Stock Exchange, after refusing to comply with the
requirement to issue quarterly reports.
Paul Polman, CEO since 2009 of Anglo-Dutch consumer goods giant
Unilever <ULVR.L> <UNc.AS>, the seventh biggest firm on the London
Stock Exchange, is a critic of what he calls "quarterly capitalism".
He has changed Unilever's reporting so that full bottom-line figures
are given just twice per year.
RELAXED RULES
Under the newly relaxed rules companies could of course choose to
continue issuing quarterly statements, but early signs suggest that
many would stop.
In a December poll of Britain's 350 biggest companies by the ICSA, a
trade body, and the Financial Times, 20 percent of respondents said
they would scrap the practice, while 23 percent said they would
continue and 53 percent were undecided.
The idea of scrapping quarterly reporting was put forward by
economist John Kay in a 2012 review, which pressed for less short-termism
in equity markets and was widely endorsed in Britain, both by
parliamentarians and investors.
But Kay said that U.S. investors, who form the largest group of
foreign shareholders in British companies, were less enthusiastic,
worrying that this kind of deregulation could make companies more
opaque.
Though many in the United States agreed with Kay about the damage
caused by the quarterly earnings cycle, "the suggestion that the
requirement might actually go is something that even many people who
take that view look at with horror," he said.
That horror just might deter companies with a strong U.S. presence
from changing their practices.
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And for the 26 British-listed companies with secondary U.S.
listings, which represent more than 2 trillion pounds ($3.29
trillion) on the London Stock Exchange, there may be extra pressure
to meet quarterly reporting expectations, though they are not
required to do so under U.S. law.
"The notion that information disclosure is the answer to most
problems is even more heavily ingrained, I think, in the U.S. than
it is here," Kay said.
TRANSPARENCY
In the United States, companies have had to issue quarterly reports
for decades, whereas the requirement was only formally introduced in
Britain in 2007 as part of the EU's Transparency Directive.
It is that directive which is currently being amended, as announced
by the European Commission in June.
Early this year the British government will bring in legislation to
allow it to axe the quarterly reporting requirement ahead of the
EU's November 2015 deadline.
The European Commission said it wanted to encourage long-term
investment but also to lessen the administrative burden for small-
and medium-sized companies, for which the cost of regulatory
compliance eats up a bigger slice of outgoings.
The rule change might also encourage private companies to list
shares for the first time.
" is part of the regulatory burden associated with listing which
means that some companies that might otherwise consider equity
finance might not do so," said Leo Ringer of the Confederation of
British Industry.
But it seems likely that firms with a large proportion of U.S.
investors will be wary of doing away with the practice.
Sammy Simnegar of U.S. asset manager Fidelity, 18 percent of whose
billion-dollar International Capital Appreciation Fund is invested
in British companies, said that the relaxation in reporting rules
would impair the transparency that Britain is renowned for and would
be a "move in the wrong direction" for companies.
"You don't want to be doing something that puts you one step
behind," he said. "You want to be best in class." ($1 = 0.6084
British pounds)
(Reporting by Jemima Kelly; editing by
Giles Elgood)
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