FCLTGlobal, a leading nonprofit research organization dedicated to fostering long-term investment and corporate decision-making, has formally submitted a comment letter to the U.S. Securities and Exchange Commission (SEC) in response to the proposed rule amendments that would allow public companies to elect semiannual reporting instead of the current quarterly cadence. The letter, penned by FCLTGlobal CEO Sarah Keohane Williamson, strongly supports the SEC’s initiative, arguing it represents a crucial step in mitigating the pervasive issue of structural short-termism within U.S. public capital markets. FCLTGlobal’s extensive research, spanning over a decade, has consistently highlighted the detrimental effects of an overly truncated reporting cycle on corporate strategy, investor behavior, and overall economic health.
The organization’s submission, dated [Insert Date of Comment Letter Submission, e.g., October 26, 2023, if this were a real-time event], underscores that the proposed shift aligns with FCLTGlobal’s long-standing advocacy for reforms that encourage a longer-term perspective. The membership of FCLTGlobal is diverse, encompassing influential asset owners, asset managers, and corporations from around the globe, all united by a commitment to embedding long-term thinking into corporate and investment practices.
The Persistent Problem of Quarterly Short-Termism
FCLTGlobal’s core argument rests on the systemic bias toward short-term decision-making that the current quarterly reporting cycle inherently reinforces. This bias, the organization contends, imposes significant costs on companies, investors, and the broader economy. Their foundational research has revealed a striking consensus among business leaders: 88 percent of executives believe that operating with longer time horizons would demonstrably improve financial performance. Yet, these same executives frequently report feeling constrained by a market infrastructure meticulously built around the 90-day interval.
The entrenched rhythm of quarterly reporting dictates the focus of management attention, shapes investor expectations, and influences media coverage. Even for companies that strive to resist the temptation of "managing to the quarter," the surrounding ecosystem of analyst consensus models and earnings calls acts as a powerful gravitational force, perpetuating a short-term orientation that is challenging to escape.
The investment case against this short-termism is equally compelling, supported by extensive empirical evidence. McKinsey research, cited by FCLTGlobal, indicated that from 2001 to 2014, companies with a long-term orientation experienced cumulative revenue growth that was, on average, 47 percent higher than their short-term-focused counterparts. Furthermore, these long-term firms exhibited less volatility and achieved earnings growth that was 36 percent higher over the same period. FCLTGlobal posits that structural reforms, such as the proposed shift to semiannual reporting, can effectively liberate companies to operate on longer planning horizons, thereby safeguarding investor interests and fostering more robust capital formation.
The Growing Asymmetry with Private Markets
A significant factor influencing the debate, and a key point raised in FCLTGlobal’s letter, is the dramatic evolution of the U.S. private capital markets. Over the past two decades, private equity, private credit, and venture capital have expanded immensely in scale and sophistication. These entities now deploy capital across a far broader spectrum of industries and company stages than was the case when the current quarterly reporting norms were established. Critically, companies operating within these private market structures are not subject to mandatory quarterly disclosure requirements and face substantially lower reporting burdens compared to their public-market counterparts.
This stark asymmetry has emerged as a significant structural force shaping the decision-making process for companies considering an Initial Public Offering (IPO). The resulting imbalance effectively narrows the investment universe available to both retail and institutional investors who operate within the public markets. By recalibrating the cost-benefit equation through optional semiannual filings, the proposed rule change aims to make participation in public markets more competitive with the alternatives offered by private investment structures.
FCLTGlobal’s Endorsement of the Proposed Framework
FCLTGlobal’s support for the SEC’s proposal is rooted in its previous recommendations. During the Commission’s solicitations for comment on quarterly reporting standards in 2018 and 2019, FCLTGlobal formally advocated for a model that would permit companies to choose between a quarterly schedule and a half-yearly reporting approach, contingent upon the adoption of a higher standard for the interim disclosure of material information. The organization expresses satisfaction that the Commission’s current proposal embraces this flexible, opt-in framework.
The rationale behind endorsing an opt-in mechanism is multifaceted. Different companies operate on distinct business cycles, making a mandatory, one-size-fits-all shift potentially unnecessary and even counterproductive. An optional framework empowers companies and their boards to make disclosure frequency decisions that are tailored to their specific operating models, in collaboration with their investors. This flexibility also serves to reduce a significant disincentive for companies contemplating the transition to public markets.
Furthermore, FCLTGlobal notes that this approach aligns U.S. markets with international practices. Jurisdictions like the United Kingdom and the European Union have long permitted companies to report with lower frequency, complemented by requirements for the timely disclosure of material events. Experience in these markets, FCLTGlobal points out, does not support the concern that reduced reporting frequency leads to a deterioration in transparency. Instead, it suggests that robust investor protection can be maintained even when companies are not compelled to organize all external communication around artificial 90-day intervals.
Empirical studies lend further weight to the argument that mandatory quarterly reporting can incentivize short-term behaviors. A 2023 study examining Japanese firms found that when companies were required to report quarterly, managers systematically reduced R&D spending and adjusted operations to meet near-term targets. Similar findings emerged from Europe, where research published in The Accounting Review indicated that firms subjected to mandatory quarterly disclosure engaged in short-term manipulation, experienced brief performance improvements, and subsequently witnessed a deterioration in their performance.
Key Considerations for Enhancing the Framework
While strongly supporting the proposed rule, FCLTGlobal also offers several key considerations to further strengthen the framework and ensure it achieves its objectives effectively.
Addressing Investor Concerns Regarding Information Asymmetry
FCLTGlobal acknowledges that a significant portion of the investor community has voiced concerns about potential information asymmetry arising from reduced reporting frequency. These concerns include the potential for wider information gaps between companies and shareholders, increased capital costs, and greater market volatility. However, FCLTGlobal believes these concerns are best addressed through the careful design of the framework rather than through outright rejection of the proposal. The proposed opt-in structure inherently ensures that companies will only elect semiannual reporting if their boards and investor bases support such a move. Moreover, robust continuous disclosure requirements for material events can provide assurance to investors that they will receive timely and relevant information, irrespective of the base reporting cadence.
The Imperative of Enhanced Material Event Disclosure
A critical component of any reduction in mandatory reporting frequency, according to FCLTGlobal, must be a corresponding enhancement of requirements for the continuous disclosure of material developments. Investors transitioning to semiannual reports from a quarterly cadence need to be confident that significant events, those that a reasonable investor would deem important, will reach the market promptly. To this end, FCLTGlobal recommends that the SEC provide explicit guidance on the heightened expectations for Form 8-K filings and related material event disclosures that should accompany a company’s election to file semiannual reports. This ensures that the "eyes and ears" of the market remain vigilant and informed between formal reporting periods.
Maintaining a Clear Distinction Between Reporting and Guidance
FCLTGlobal emphasizes the critical importance of maintaining a clear distinction between mandatory reporting (the retrospective disclosure of historical financial performance) and voluntary earnings guidance (forward-looking projections of near-term results) in the Commission’s final rule and any accompanying interpretive guidance. The organization’s research consistently demonstrates that it is quarterly Earnings Per Share (EPS) guidance that most directly drives short-term corporate behavior. Companies that engage in the "quarterly guidance game" tend to attract transient, short-term-oriented investors, face intense pressure to manage around self-imposed short-term targets, and consequently underinvest in crucial long-term value drivers such as research and development, talent acquisition, and strategic initiatives.
The proportion of S&P 500 companies issuing quarterly EPS guidance has already seen a substantial decline, from nearly 50 percent of large-cap companies in 2004 to approximately 21 percent in 2024, as management teams have increasingly recognized the detrimental costs associated with this practice. Furthermore, FCLTGlobal’s surveys indicate that over 75 percent of institutional investors surveyed believe companies should move away from quarterly guidance, with fewer than 7 percent expressing a desire for guidance on any metric for periods shorter than one year.
FCLTGlobal’s analysis suggests that a company electing semiannual reporting but continuing to issue short-term EPS guidance will realize only limited benefits from the reduced reporting frequency. Conversely, a company that eliminates quarterly guidance while maintaining quarterly reporting may still achieve significant gains in attracting a long-term investor base and enhancing its strategic flexibility. Therefore, the Commission should clarify that the proposal specifically addresses reporting frequency. The SEC, FCLTGlobal argues, should not expect or encourage short-term guidance but should instead welcome companies to provide investors with a long-term strategic framework – a forward-looking articulation of the company’s three-to-five-year objectives, key performance indicators (KPIs), and capital allocation priorities.
Exploring Alternative Reporting Formats
As a complement to reduced reporting frequency, FCLTGlobal reiterates its prior recommendations for the Commission to explore alternative reporting formats. These could include year-to-date cumulative reporting and trailing twelve-month presentations. Such formats would maintain information continuity for investors while mitigating the quarter-to-quarter variance that can distort business decisions. FCLTGlobal encourages the Commission to consider how a potential Form 10-S, for example, could incorporate or permit such formats, thereby offering companies flexibility not only in when they report but also in how they present performance trends.
Conclusion: A Step Towards a More Sustainable Capital Market
In conclusion, FCLTGlobal unequivocally supports the SEC’s proposed amendments permitting optional semiannual reporting. The proposal reflects a well-grounded recognition that the existing quarterly reporting mandate imposes structural costs on long-term investment and that a one-size-fits-all approach fails to serve all companies and investors equally.
The significant growth of private markets since the quarterly reporting standard was last comprehensively examined presents a formidable alternative operating without comparable disclosure obligations. The SEC’s proposal offers a timely opportunity to reduce this asymmetry and render public markets more attractive to the companies and long-term investors who have increasingly gravitated toward private alternatives.
FCLTGlobal maintains that well-designed disclosure frameworks are fundamental to efficient capital markets. The critical determinant is not the frequency of reporting, but rather whether the information investors receive empowers them to make well-informed, long-term decisions. The Commission’s proposal, by introducing greater flexibility and encouraging a longer-term perspective, represents a significant step in the right direction for achieving this objective. FCLTGlobal has expressed its eagerness to further discuss these critical issues and to make its extensive research available to Commission staff.
