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Quarterly reporting – the argument against

The debate between investors and companies about the merits of quarterly reporting remains intense. Phil Corbett is opposed.

It is a statement of the obvious that IROs should be leading advocates for best-in-class disclosure and transparency. However, they should aim to combine these attributes with a reporting regime that allows management teams to focus on developing and executing a long-term strategy as opposed to beating quarterly forecasts. For those issuers who have the discretion to choose, reporting bi-annually with ad hoc business updates is a better basis for long-term value creation than quarterly reporting.

The recent IR Society snap poll on quarterly reporting/interim management statements (see right) identified a clear trend among respondents for scheduled quarterly results/updates. Encouragingly, there appears to be a move towards simplification of content in such disclosures. Furthermore, some sectors with rapidly changing dynamics, or high-growth industries, may find it difficult to report financial results less frequently than once a quarter. And of course, quarterly reporting may be legally required in some jurisdictions.

However, where there is discretion over reporting timetable, there appears to be no clear reasoning behind the continued support for scheduled quarterlies. Possible justifications include a reluctance to change the status quo, concern at fewer formal market interactions, and a perceived difficulty in keeping analyst forecasts ‘current’. The objections have varying degrees of legitimacy, but are not justified when compared with the negative impacts of a quarterly reporting system – particularly when a volatile market reaction may impact on the cost of financing/implementing longer-term investment decisions.

Vocal proponents
The concept that quarterly reporting and/or seeking to meet short-term market expectations is detrimental to long-term planning, strategy and share price performance has been gaining traction in recent years. Some of the world’s largest asset management firms have been vocal proponents of the move away from quarterly reporting, supported by both the UK government (Kay Review) and the European Commission (amended EU Transparency Directive). Dissenting opinions are most likely to come from those who have most to lose (ie, short-term traders) – even then the main argument is around the nature of the information obtained in quarterly reports rather than arguing that the frequency of earnings reports helps both issuer and the market.

Of course, events which give rise to material non-public information need to be disclosed without delay. Otherwise, analysts and investors should be provided, if possible, with all the tools necessary to sensitise issuer’s guidance in order to ensure that market forecasts are as up to date as possible.

Ask a sample of CEOs who they would like on an optimal shareholder register and its likely you will hear a consistent reply – blue-chip institutional investors who will buy into management’s strategy and vision for the long-term. Engage with these investors and it’s likely that most of the meeting will be spent on strategy rather than which financial/operating metric they should be keeping an eye on at the Q3 results.

Management teams should be educated that regular and open dialogue with investors, both current and prospective, is much more important to the longer-term success of an issuer than whether an analyst’s quarterly forecasts are out of date.

In parallel, IROs should be empowered by management to deliver a reporting schedule that best allows the market to understand the current performance and how this plays into long-term planning and strategy.

Phil Corbett is head of investor relations at Genel Energy. phil.corbett@genelenergy.com

Published: 29 March, 2017