Print Published 21st Aug 2018, 10:13

Anything is possible in the fantasy world of Trumpton

Anything is possible in the fantasy world of Trumpton, but the notion that public corporations should get more favourable treatment at the potential expense of their shareholders is novel even by President Trump’s unpredictable standards.

If the Securities & Exchange Commission concludes its deliberations in favour of the Trump doctrine that quarterly filings should be abolished, every investor and pensioner in the US should start to worry (see Trump advocates ditching quarterly SEC reports in the US).

It’s not that quarterly reporting is essential in every case.  It’s rather that, in the absence of quarterly reporting, the really important cases that need to be brought to public and SEC attention may not be identified quickly enough.

Of course there will be arguments for and against any change and we need to remember that, so far, the UK has seemingly managed quite well without compulsory quarterly financial filings – even by large global corporations.

Some commentators argue that quarterly reporting encourages short-termism – where management decisions are geared to showing the next quarter’s results in the best light.

That argument invites two retorts. First, short-termism is endemic among many corporate executives and institutional investors irrespective of the frequency of financial reporting. Secondly, managements that pursue short-term policies will get found out quicker from quarterly reports than if investors and commentators had to wait for half-yearly or yearly ones.

This publication is probably not best placed to illustrate the dangers of the Trump approach in the US, but even here in the UK we have noted the benefits of quarterly reporting as it has affected US listed marketing companies like MDC Partners and comScore.

At MDC the former chairman and chief executive Miles Nadal consistently waxed lyrical each quarter about the group’s performance when the SEC filings were equally consistent in reporting hefty quarterly losses (see chart).  The only surprising aspect was how long it took for the investment and banking community, and even the SEC, to seek any action (see Nadal leaves MDC Partners: disgraced founder to repay another $12.5m).   How much longer would it have taken if the company only reported at half-yearly intervals?

At comScore, where WPP has a minority shareholding, an incoming chief financial officer blew the whistle on an over-generous accounting policy.  Thereafter the inability of the group to file any further figures for one quarter after another had to be explained and this highlighted the scale of the problems and lead to the suspension of its shares (see ComScore CFO replaced, SEC filings delayed further, $110m litigation settlement).

Such information as was published by MDC and comScore – not least the impact on their balance sheets – enabled the press to investigate further and to draw attention to the seriousness of the situation at each company, something that may have taken longer to have any impact if reliant only on half-yearly or annual reports.

By comparison with the US, the UK is hardly a glowing example of good and regular reporting.   Only this week the watchdog Financial Reporting Council came in for heavy criticism for inadequate policing.  And some might argue that the UK’s standards of reporting have been in steady decline ever since the rule-makers decided to bury the concept of prudence and to treat accounts presentation as an art form that should be left predominantly to the intellect of academics and the creative talents of company directors to develop (see Once upon a time revenue would not be anticipated).

The question for the SEC to address is whether investors and other users of financial statements would be put at too great a risk if companies were allowed to achieve the cost savings that might emerge from less frequent financial filings and to be given a more “flexible” (less prudent?) approach to financial reporting.  Regular filing of financial information is part of the price to be paid by a company that wishes to trade its shares on a regulated public market – even in Trumpton.