The U.S. Securities & Exchange Commission is moving forward with a potential change to remove the requirement for public corporations to file quarterly financial reports, and at least a couple of current and former Arkansas company CEOs have mixed feelings about the development.
The SEC’s action comes on the heels of President Donald Trump’s call in a social media post Sept. 15 to change the rule. In the following days, SEC Chairman Paul Atkins, a Trump appointee, took up the cause to reduce companies’ mandatory reporting to every six months.
Since 1970, public companies have been required to file 10-Q forms, detailing their financial results for the previous three months. These filings are often paired with conference calls in which company officials discuss their financial results with industry analysts and media members.
In his Sept. 15 post, Trump wrote, “Subject to SEC Approval, Companies and Corporations should no longer be forced to ‘Report’ on a quarterly basis (Quarterly Reporting!), but rather to Report on a ‘Six (6) Month Basis.’ This will save money, and allow managers to focus on properly running their companies. Did you ever hear the statement that, ‘China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis???’ Not good!!!”
Trump also broached the idea during his first term in 2018, but the initiative went nowhere. He has a more willing partner this time around in Atkins, who went on CNBC on Sept. 19 to promote the idea.
The proposed change would not eliminate quarterly reports because companies could still file a 10-Q every three months if they desired, but it would no longer be mandatory. England and the European Union changed to semiannual filing requirements a decade ago.
“There’s been a lot of discussion over the past few years about how this quarterly reporting kind of emphasizes a short-term type of thinking,” Atkins said. “I think that for the sake of shareholders and public companies, the market can decide what the proper cadence is.
“In principle, I think, to propose a change in what our rules are now, I think would be a good way forward, and then we’ll consider that and move forward after that. So I welcome the president’s putting this for discussion.”
Pros & Cons
Proponents of the change say quarterly reports can cause too much short-term focus on financial goals, create costly and time-consuming paperwork and dampen incentives for more companies to go public. Those opposed to the change say quarterly reports generate timely financial information that is critical for investors and the public.
“Here’s two thoughts: One is, I think it would be beneficial, because I tend to think that it’s the longer term in our business that is what matters most,” said Judy McReynolds, the CEO of ArcBest Corp. of Fort Smith and a former chief financial officer. “I feel like with quarterly reports, people overemphasize the next three months or the last three months.
“I also think from a realistic standpoint, if that [change] was done, companies might be pressured to put out updates anyway, but maybe it’s not the full 10-Q filing.”
James Reed was CEO of USA Truck Inc. in Van Buren from 2017-2022 and has also been a CFO. He said he was concerned that less frequent financial reporting could lessen a company’s financial transparency for investors.
“I don’t want to step on the Trump administration’s toes at all. I understand that they’re pushing for this and that it’s an efficiency play,” said Reed, now an operating partner at Banner Capital, a private equity firm in Salt Lake City. “It inherently doesn’t add a lot of value to the economic process. The pro is that it allows businesses to put their precious limited resources into other, higher value-added things.
“The con is that this is how the American investor gains their information and insight. I wonder, how do individual investors make decisions about where they’ll invest, where they’ll put their money, if they don’t have quarterly information? If you lose a quarterly reporting phenomena, you then rely basically on the news cycle and the news habits, if you will, of the entities.
“I would imagine they’d still be subject to other disclosure responsibilities, but the companies then begin to control the narrative a lot more in a non-GAAP-regulated way that makes it very difficult for investors to make informed decisions.” (GAAP refers to generally accepted accounting principles, the accounting standards widely used by companies for financial reporting.)
Numbers Don’t Lie
Several Arkansas public companies declined to comment or didn’t respond to requests about the proposed rule change.
Ed Bilek, an executive vice president and director of investor relations at Simmons Bank of Pine Bluff, said Simmons would still be responsible for filing quarterly reports to the Federal Reserve as a financial institution.
Bilek said quarterly reports help Simmons be transparent but also generate valuable feedback from its shareholders.
“We believe in open and transparent communication with our shareholders and potential shareholders … in accordance with the rules and guidelines for a publicly traded company,” Bilek said. “I don’t think this is going to be something that happens [quickly]; it’ll take a little time. There’s obviously going to be a comment period. People are going to express opinions, both pros and cons. Again, we value open and transparent communication with shareholders.”
Reed said bad actors are still going to subvert financial responsibility.
“I have often said, ‘In God we trust, and all else must provide data,’” Reed said. “I don’t mean that as some snotty imperative from James Reed. I just think the investment community has come to rely on standardized reporting as a means to make comparisons.”
At ArcBest, the company releases information about its financial performances in the month leading up to its 10-Q filing. McReynolds said up-to-date data is important to companies, shareholders and investors.
“I feel like that would be something that would be hard for it to go away, because investors are so interested in just how things are going,” McReynolds said. “And if you’re meeting with an investor, you as a public company, you want to be able to have a good conversation about that. And if you haven’t disclosed the latest, it’s hard to.”
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