Opinion
Trump is Right: Quarterly Earnings Reports Should Go
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It's unclear if moving to semi-annual reporting will cure corporate short-termism, but it's a step in the right direction.
By Tensie Whelan
Last week, President Donald Trump suggested in a tweet that companies could report results every six months instead of quarterly.
"That would allow greater flexibility & save money. I have asked the SEC to study!" he tweeted.
Quarterly reporting seems like a good thing — transparency ensures informed decision-making by investors. And critics of Trump's idea have cited concerns over a lack of transparency leading to increased investor risk.
Yet in practice, quarterly reporting has evolved into a system of managing primarily for the quarterly numbers, with a net result of distorting financial performance negatively, much in the way teaching students solely to perform well on a standardized test distorts their learning.
The focus on quarterly results has brought us unprecedented share buybacks which artificially boost stock prices, non-strategic cost-cutting, less investment in longer-term basic and applied research (versus product development), as well as an unhealthy pressure on labor costs.
For instance, from 2003 to 2012, the 449 companies publicly listed in the S&P 500 index used 54% of their earnings to buy back their stock, and another 37% went toward paying dividends, leaving little left to invest in employees or innovation.
Read the full CNNMoney article.
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Tensie Whelan is a Clinical Professor of Business and Society and Director of the Center for Sustainable Business.
"That would allow greater flexibility & save money. I have asked the SEC to study!" he tweeted.
Quarterly reporting seems like a good thing — transparency ensures informed decision-making by investors. And critics of Trump's idea have cited concerns over a lack of transparency leading to increased investor risk.
Yet in practice, quarterly reporting has evolved into a system of managing primarily for the quarterly numbers, with a net result of distorting financial performance negatively, much in the way teaching students solely to perform well on a standardized test distorts their learning.
The focus on quarterly results has brought us unprecedented share buybacks which artificially boost stock prices, non-strategic cost-cutting, less investment in longer-term basic and applied research (versus product development), as well as an unhealthy pressure on labor costs.
For instance, from 2003 to 2012, the 449 companies publicly listed in the S&P 500 index used 54% of their earnings to buy back their stock, and another 37% went toward paying dividends, leaving little left to invest in employees or innovation.
Read the full CNNMoney article.
____
Tensie Whelan is a Clinical Professor of Business and Society and Director of the Center for Sustainable Business.