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01 January 0001
Right before the SEC open meeting originally scheduled to discuss the issue, the SEC has posted a "request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies." (The matter has been deleted from tomorrow's agenda. According to the press release, the request for comment solicits "public input on how the Commission can reduce burdens on reporting companies associated with quarterly reporting while maintaining, and in some cases enhancing, disclosure effectiveness and investor protections. In addition, the Commission is seeking comment on how the existing periodic reporting system, earnings releases, and earnings guidance, alone or in combination with other factors, may foster an overly short-term focus by managers and other market participants." The public comment period will be open for 90 days following publication of the Request in the Federal Register.
(Note that the SEC also adopted hedging policy disclosure rules and likewise removed that from tomorrow's agenda, but more on that tomorrow.)
The request for comment includes many, many thoughtful questions, and the ones below can only provide a limited flavor of some of the questions. The questions are generally focused around these broad topics:
The reference may be to a WSJ op-ed by investor Warren Buffett and JPMorgan CEO Jamie Dimon advocating a move away from quarterly guidance, but reaffirming their support for quarterly reporting. (See this PubCo post.) In addition, a group of prominent CEOs of major public companies and institutional investors developed a list of "commonsense corporate governance principles," designed to generate a constructive dialogue about corporate governance at public companies. With regard to earnings guidance, the group maintained that a "company should not feel obligated to provide earnings guidance – and should determine whether providing earnings guidance for the company's shareholders does more harm than good. If a company does provide earnings guidance, the company should be realistic and avoid inflated projections. Making short-term decisions to beat guidance (or any performance benchmark) is likely to be value destructive in the long run." It's worth noting here that many smaller companies feel compelled to provide earnings guidance or risk loss of analyst coverage. With regard to quarterly reporting, the view of the group was that companies "should frame their required quarterly reporting in the broader context of their articulated strategy and provide an outlook, as appropriate, for trends and metrics that reflect progress (or not) on long-term goals." (See this PubCo post.)
For further information on this topic please contact Cydney Posner at Cooley LLP by telephone (+1 415 693 2000) or email (firstname.lastname@example.org). The Cooley LLP website can be accessed at www.cooley.com.
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