Trump backs CEOs, proposes easing corporate reporting rules

[August 18, 2018]  (Reuters) - U.S. President Donald Trump asked securities regulators to explore replacing quarterly reporting requirements with half-yearly filings at the urging of executives including PepsiCo Chief Executive Indra Nooyi, reigniting a debate about how often companies should give financial updates to investors.

Such a switch would mark a huge change in the U.S. Securities and Exchange Commission's disclosure requirements and put them in line with European Union and United Kingdom rules.

Trump said on Twitter that meetings with business leaders had convinced him that the change would give companies more flexibility and reduce costs.

"I'd like to see twice, but we're going to see," Trump told reporters when asked about his tweet. He said Nooyi, who will step down in October after 24 years at PepsiCo Inc <PEP.O>, had brought it up to him.

Nooyi said in an e-mailed statement, "Many market participants, as well as the Business Roundtable which we are a part of, have been discussing how to better orient corporations to have a more long-term view ... My comments were made in that broader context, and included a suggestion to explore the harmonization of the European system and the U.S. system of financial reporting."

Some investors and analysts said Trump’s argument made sense because it would cut costs of compiling and filing results and remove short-term distractions for those running companies.

Others said quarterly disclosures are essential for investment decisions and support richer U.S. stock valuations, and that a change could make shares more volatile.

The SEC is an independent agency, and the president cannot force it to implement rule changes. Any move to scrap quarterly filings would have to be voted on by the SEC's sitting commissioners, who are political appointees.

In a statement on Friday afternoon, SEC Chairman Jay Clayton said Trump has raised a "key consideration" for U.S. companies and that the agency's "Division of Corporation Finance continues to study public company reporting requirements, including the frequency of reporting."

Following Clayton's statement, the agency also announced it had voted to adopt a rule change first proposed in 2016 to streamline some company accounting disclosures, in an unscheduled private commission vote.

While capital market rules are not traditionally a partisan issue, a major rule change would likely meet opposition from the agency’s two Democratic-leaning commissioners, Robert Jackson and Kara Stein, who generally advocate for strong corporate governance.

Even if the SEC concluded the change was a good idea, companies would likely stick with the current regime to avoid investor backlash, said Ed Yardeni, founder and chief investment strategist at Yardeni Research.

“It’s cockamamie idea. For starters, what’s the difference between six and three months? ... Either way we’re talking about a very short-term period," Yardeni added.

Under Clayton, a Trump appointee, the SEC has taken steps to relax rules for issuers, including allowing firms going public to file information confidentially, and is currently discussing easing other compliance rules. But scrapping quarterly reporting is not on the SEC's near-term agenda, according to public records.

Tesla Inc <TSLA.O> Chief Executive Elon Musk stunned investors last week with a plan to take the electric carmaker private, a move he says would benefit shareholders by removing short-term pressures.

President Donald Trump addresses members of his cabinet and the news media as he holds a cabinet meeting at the White House in Washington, U.S., August 16, 2018. REUTERS/Kevin Lamarque

“I do believe it will help upper management ... We start preparing three weeks in advance every quarter, essentially taking almost a third of executives’ time each quarter,” said Bryan Sheffield, chief executive of shale oil producer Parsley Energy Inc <PE.N>.

But he said energy companies would probably still report some oil and gas well data every three months to please investors.

Trump recently hosted company leaders at his private golf club in Bedminster, New Jersey, including the heads of Apple Inc <AAPL.O>, Fiat Chrysler Automobiles NV <FCHA.MI>, Boeing Co <BA.N>, FedEx Corp <FDX.N>, and Honeywell International Inc <HON.N>.

OPENING CORPORATE BOOKS

The Trump administration has said it would like to reduce red tape it blames for a decline in public listings. In 1998, there were around 7,500 listed companies in the United States, compared with around 4,300 in 2017, according to the World Bank.

Last fall it laid out changes to capital market rules in a U.S. Treasury report, but did not advocate scrapping quarterly reporting.

Business groups including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and exchange operator Nasdaq have been lobbying for lawmakers and the SEC to relax listing rules, warning that the decline in listings hurts jobs and pension funds.

Billionaire investor Warren Buffett and JPMorgan Chase & Co <JPM.N> Chief Executive Jamie Dimon wrote in the Wall Street Journal in June that companies should move away from quarterly guidance, but did not call for an end to quarterly reporting.

The Council of Institutional Investors (CII) believes that public companies should continue to report quarterly.

“Investors and other stakeholders benefit when regulations ensure that important information is promptly and transparently provided to the marketplace,” said Amy Borrus, CII’s deputy director. “Investors need timely, accurate financial information to make informed investment decisions.”

(Reporting by Lawrence Delevingne, Susan Heavey, Michelle Price, Makini Brice, Richa Naidu, Pete Schroeder, Chris Prentice and Ernest Scheyder; Writing by Meredith Mazzilli; Editing by Bernadette Baum and Nick Zieminski)

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