The U.S. Securities and Exchange Commission (SEC) is contemplating a significant alteration to its reporting requirements for publicly traded companies, proposing to shift the standard from quarterly earnings reports to semiannual disclosures. This potential move, which has generated a torrent of public comments overwhelmingly opposed to the change, could fundamentally reshape how businesses communicate financial performance and how investors receive and process that information. While the SEC has received hundreds of thousands of public comments on its May proposal, with less than 1% expressing support according to an analysis by Ohio State business professor Tzachi Zach, reporting from The Wall Street Journal suggests the commission is likely to proceed with some version of the rule. This development prompts critical questions for public companies: how should they prepare for such a transition, what are the underlying motivations behind the SEC’s proposal, and what are the broader implications for market transparency and corporate governance?
The Shifting Landscape of Financial Reporting
The SEC’s proposal to allow listed companies to opt for semiannual reporting instead of the current quarterly mandate marks a departure from a long-standing practice designed to provide timely updates to the market. The impetus behind this potential change, according to proponents, is to reduce the compliance burden on businesses, thereby encouraging more companies to remain public or even consider going public. However, the overwhelming public response highlights a deep-seated concern among investors and market participants about the potential impact on transparency and investor protection.
Data from Tzachi Zach’s tracker reveals a stark division in public opinion. While only 3% of commenters cited a reduction in compliance burden as a primary rationale for supporting the proposal, a significant 39% raised concerns about investor protection and transparency. Furthermore, 27% of the opposition focused on the increased risk of fraud or insider trading that could arise from less frequent disclosures. This disparity underscores the central tension: balancing the desire to alleviate regulatory burdens on corporations with the imperative to safeguard investor interests in an efficient and transparent marketplace.
Navigating the Decision: Expert Insights for Public Companies
For public companies, the decision to adopt semiannual reporting, should the rule be finalized, will not be a one-size-fits-all proposition. Experts emphasize that a thorough internal assessment, coupled with robust engagement with key stakeholders, will be paramount.
Edward "Eddie" Best, co-chair of the capital markets practice at law firm Willkie Farr, advises companies to prioritize dialogue with their investors, analysts, and bankers before making any recommendations to the board of directors. "Any decision by the board must be well-informed," Best stated in a Q&A with Corporate Compliance Insights. This sentiment is echoed by Payton McCoy, CEO and co-founder of SEC reporting startup Greenshoe, who poses a critical question for companies to consider: "Will reporting less frequently increase or decrease investor confidence? If the answer is decrease, any compliance savings could easily be outweighed by a higher cost of capital."
Key Action Items for Decision-Makers
Should the SEC adopt its proposed rule, decision-makers within public companies face a complex set of considerations:
- Investor and Stakeholder Engagement: Proactive communication with investors, analysts, and bankers is crucial to gauge their reaction and potential impact on the cost of capital. Understanding how different investor segments—such as index funds, active managers, and quantitative funds—rely on quarterly data will inform the decision.
- Debt Covenants and Agreements: Companies must review their existing debt agreements to ensure flexibility regarding reporting timelines.
- Listing Exchange Rules: It is essential to confirm that the rules of the relevant stock exchange (e.g., Nasdaq) do not impose separate quarterly reporting obligations, which could negate the SEC’s rule change for some companies.
- Internal Controls and Audit Committee Involvement: The shift impacts internal controls and SOX certification processes, necessitating close collaboration with the audit committee and external auditors.
- Cost-Benefit Analysis: A comprehensive assessment of actual cost savings must be balanced against potential increases in the cost of capital due to reduced transparency. This analysis should also consider the cost of providing interim data via Form 8-K.
- Competitive Landscape and Peer Benchmarking: Companies must consider how their reporting cadence will compare to industry peers. Being an outlier in terms of transparency could lead to a "transparency discount" applied by analysts and investors.
- Control Environment Assessment: Companies with strong internal audit functions and real-time monitoring capabilities may be better positioned to manage the risks of less frequent formal disclosures compared to those relying on quarterly closes as a control mechanism.
- Capital Raising Strategy: Businesses that frequently engage in debt or equity capital raising may find continued quarterly reporting to be more advantageous.
Payton McCoy further elaborates that the decision should be industry-specific, predicting the emergence of "industry-specific standards" rather than a single market norm. "Companies should ask themselves a simple question: ‘Will reporting less frequently increase or decrease investor confidence?’" he reiterates. "If the answer is ‘Decrease,’ any compliance savings could easily be outweighed by a higher cost of capital." He adds that in an increasingly competitive business environment, "Companies used to compete on products and services. Increasingly, they’ll compete on transparency."
The SEC’s Stated Goals: Revitalizing IPOs and Capital Markets
The SEC’s push for this reporting change is framed within a broader administrative goal to "Make IPOs great again," aiming to revitalize the initial public offering (IPO) market and enhance the overall health of public markets. However, experts suggest that the reporting frequency may be a secondary factor in the IPO decision-making process.
Eddie Best contends that while the reporting burden is a consideration, more critical factors for going public include the need for capital liquidity for existing shareholders, employee incentives, and acquisition currency. He notes that the success of a company is derived from its business operations, not its listing status, and that the regulatory and litigation burdens of being public should not deter companies from accessing public markets.
"It’s a goal worth pursuing because strong public markets are one of society’s greatest wealth-creation engines," McCoy states, emphasizing that public markets allow everyday investors to participate in the growth of companies. While he believes the rule may reduce some friction, he cautions that "it won’t determine whether a company succeeds. Going public doesn’t make a company better, and staying private doesn’t make it worse."
Interpreting the SEC’s Rulemaking Process Amidst Public Opposition
The overwhelming opposition to the SEC’s proposal presents a complex picture of the agency’s rulemaking process. While the sheer volume of negative feedback is notable, experts advise against concluding that public comments are either disregarded or solely determinative of outcomes.
Eddie Best explains that the comment process is not a public referendum but rather a mechanism for the agency to consider significant feedback. Courts assess whether an agency’s decision is "arbitrary and capricious," which involves demonstrating that the agency considered, rather than ignored, substantial comments. He observes that comments rarely reverse an agency’s direction when political leadership is committed to a policy but can significantly shape the details of the final rule.
Payton McCoy encourages companies to view rulemaking as an iterative process where thoughtful participation remains vital. "What I do think it demonstrates is that companies should prepare for multiple regulatory outcomes rather than assuming any proposal will or won’t be adopted," he advises.
The Adequacy of Form 8-K and Regulation FD
The SEC’s rationale for semiannual reporting hinges on the belief that Form 8-K filings and Regulation FD (Fair Disclosure) are sufficiently robust to bridge the information gap between these less frequent reports. However, experts express reservations about this assertion.
Eddie Best argues that Form 8-K, which is event-triggered and typically reports material non-recurring events, does not adequately substitute for periodic reporting. It fails to capture gradual, non-event-driven developments and the detailed financial results and Management’s Discussion and Analysis (MD&A) trend analysis commonly found in quarterly Form 10-Q filings. Regulation FD, he points out, is a nondiscrimination rule that only applies when a company chooses to disclose material nonpublic information; it does not obligate disclosure.
McCoy acknowledges that while 8-Ks and Regulation FD can fill some of the void, the modern information ecosystem is far more complex. "Investors no longer rely on a single filing for information," he notes, citing earnings calls, investor presentations, press releases, industry data, social media, and peer disclosures as critical real-time information sources. This fragmented information landscape makes semiannual reporting more workable than in decades past but also exacerbates the challenge of monitoring.
The Role of Automation in the Cost-Savings Argument
The argument for cost savings often centers on eliminating auditor reviews, SOX certifications, and disclosure committee sign-offs associated with quarterly reporting. However, with the increasing automation of financial data collection and reporting, the genuine cost savings from switching may be diminishing.
"Automation has certainly reduced the mechanical burden of reporting, but the parts of quarterly reporting that remain expensive are exactly the parts technology hasn’t replaced," Best states. These include auditor review procedures, disclosure committee sign-off, legal review, and capital-markets-adjacent work. He points to the SEC’s own estimate of an approximate net reduction in direct compliance costs of only $198,000 per fiscal year for companies that switch, a figure he considers unlikely to significantly impact most public companies.
McCoy agrees that technology can automate a substantial portion of the quarterly burden, including data collection, reconciliation, drafting, and review. This implies that "the cost savings from switching to semiannual reporting may be smaller over time as quarterly reporting itself becomes cheaper and more automated." Consequently, companies should treat cost as one factor among many, weighing it against investor expectations, transparency, litigation risk, and the potential impact on their cost of capital.
Litigation Risk: A Growing Concern with Longer Disclosure Gaps
A significant concern raised by some practitioners is that switching to semiannual reporting could actually increase litigation risk. The argument posits that a longer gap between formal disclosures allows adverse information to accumulate, providing plaintiffs’ lawyers with more fertile ground for securities class actions.
Eddie Best confirms this as a "legitimate concern," particularly for companies that cease issuing quarterly earnings information. Extended disclosure gaps concentrate more information into single events, potentially leading to larger price movements on bad news—the raw material for securities class actions. Additionally, delayed disclosure of material adverse information could broaden the class of potential plaintiffs. There is also the concern that less frequent disclosure offers a longer window for problems to arise undetected by external stakeholders.
McCoy views this as a "legitimate consideration" contingent on how companies adapt. He suggests that if companies interpret semiannual reporting as an invitation to reduce their focus on disclosure, risk will increase. However, if companies maintain robust internal monitoring while simply adjusting the cadence of formal reports, the risk may be more manageable. "In other words, filing less frequently shouldn’t mean paying attention less frequently," he emphasizes.
The Practical Transition to Semiannual Reporting
For companies that opt for semiannual reporting, the internal transition is a multifaceted undertaking. Eddie Best outlines a multi-step process:
- Diligence and Assessment: This involves discussions with investors, analysts, and bankers, as well as a review of listing rules and material agreements. A thorough cost-benefit analysis is also essential.
- Interim Reporting Strategy: Companies must decide whether to continue reporting certain information on a quarterly basis.
- Board Recommendation: Management must present a well-informed recommendation to the board based on the diligence and analysis.
- Policy and Procedure Adaptation: Internal policies and procedures need to be updated to reflect the new reporting cadence.
- Market Communication: The company’s decision and rationale must be communicated clearly and thoughtfully to the market.
Payton McCoy emphasizes that the transition extends beyond simply changing a calendar. It requires evaluating debt covenants, investor expectations, analyst communications, internal controls, disclosure committee processes, board reporting, earnings practices, and numerous governance policies. He anticipates that "many companies would spend as much time preparing for the transition as deciding whether to make it in the first place."
A Coherent Direction for SEC Rulemaking?
The SEC’s proposal on semiannual reporting is part of a broader series of disclosure-related changes and signals from the current administration. Taken together, these initiatives raise questions about the overall direction of SEC rulemaking and its cumulative effect on investor transparency.
Eddie Best describes a "coherent, even explicit, program" driven by Chairman Paul Atkins’ stated principle of restoring the SEC’s original mandate to require the disclosure of "material" information, with "materiality as the North Star." He notes that the SEC’s 2026 rulemaking agenda reflects a deregulatory orientation aimed at cutting compliance burdens and facilitating capital formation. Best expresses personal agreement with the Chairman that the SEC had drifted from its statutory mandate and that many recent rules advanced political interests rather than investor protection, citing large settlements for technical violations where no investor harm was alleged. He supports the SEC’s agenda in principle, while acknowledging that "the devil is in the details," and some initiatives, potentially including semiannual reporting, could indeed lessen investor protections.
Payton McCoy views the broader direction as one of "giving companies greater flexibility in how they communicate with investors." He believes the critical question is whether this flexibility ultimately yields better market information, stating, "My view is that markets tend to reward transparency. The SEC can establish minimum requirements, but investors will ultimately determine what level of disclosure earns confidence and commands a premium."
