Investor Relations: Why Limiting Quarterly Reporting Is a Disaster in the Making

Recently, President Donald Trump Tweeted about quarterly reporting. The Tweet provided an impetus for the SEC to study the possibility of shifting from quarterly reporting to semi-annual reporting (once every six months).

For a recap on the Trump Tweet see Bloomberg or MarketWatch. If you are an Investor Relations professional and member of the National Investor Relations Institute (NIRI), you can check out a great thread on the topic under NIRI’s eGroups.

The initial focus on moving to a semi-annual cadence seems to stem from a recent conversation between President Trump and outgoing Pepsi CEO Indra Nooyi. However, we believe the Tweet represents a continuation from a couple of prior events. First, the shift in reporting cadence represents a continuation from the the clarion call from Warren Buffett and Jamie Dimon to limit quarterly reporting / guidance, as well as a continuation on the SEC’s war against non-GAAP information.

I think a shift away from quarterly reporting represents a disaster in in the making.

Why?

1. Investor Relations Needs to Lead the Charge on Investor Relations Related Matters

2. More Disclosure Is Always Better

3. Hurts Investor Relations: Less Is Not More

Investor Relations Needs to Lead the Charge on Investor Relations Related Matters: Bottom line, large entities that can be successful with minimal Investor Relations effort, should not be setting the tone on Investor Relations matters. Furthermore, I think Investor Relations professionals, especially the National Investor Relations Institute (NIRI), need to take a higher profile on Investor Relations related topics. NIRI and IR professionals should be driving the discussion not executives at high profile companies that can easily continue to succeed with minimal investor relations efforts.

More Disclosure Is Better: Investors like information. The more information they can get their hands on the better. Moving from quarterly reporting to semi-annual reporting will only limit information. Limiting the number of reporting period requirements will only limit a company’s ability to control its narrative. By foregoing a natural checkpoint for investors, the company will only cede its ability to control its message and ability to convince investors it is making the right decisions. While the positives of less Sarbanes-Oxley and less work seems attractive, the less work will only serve to bite you in the end.

Certainly, there are buy-siders that would prefer a more limited reporting cadence. Anyone that owns a stock that faces volatility due to management reputation will tell you they wished the company reported less. The problem is that the reporting cycle is about engaging as many investors as possible. The current quarterly reporting cadence allows the greatest number of investors to engage and assess management’s execution on its business decisions.

The corollary is that reducing financial reporting seems to be an off-shoot of the SEC war against non-GAAP information. During my tenure at DFT, the SEC continuously attacked non-GAAP information. The problem is that investors utilize non-GAAP information, and non-GAAP information can have significant value to investors. In reality, if enough investors use the metric either GAAP or non-GAAP, the metric becomes consensus.

Hurts Investor Relations: There seems to be this idea among Investor Relations that “Less Is More.” Already, we are too busy because we have too many analysts, I can’t be bothered to target new investors, I have too many reports to create, et al. Unfortunately, the less we do as IR professionals will result in lower salaries and less opportunity. Many are already afraid of the Sell-Side diaspora driven by MIFID II. Lessening our efforts will not combat this ongoing shift and displacement.

We need to recognize that the smaller and more complex the story, the more work and effort is required in order to attract and make investors care.

Furthermore, the NIRI agenda seems to focus on “Longtermism.” I am not sure what Longtermism really is or that it represents an effective policy.

In my mind, we as an organization and profession need to set standards on key policies. These policies should set forth the ideal for that process or aspect of Investor Relations, and then allow companies to decide how closely to follow. For example, our policy should be that companies should strive to provide financial reporting / guidance on a quarterly basis. Recognize that not all companies operate on such a cadence but that the four-quarter cadence represents a strong ideal. Companies then need to recognize Caveat Emptor, and recognize that failing to follow the ideal puts them at risk of adverse reactions from investors.

If we as a profession accept “Less Is More,” then we as a group must accept the associated fate. Under “Less Is More,” Investor Relations will likely be decimated. As a group, we will see lower salaries and less opportunities across the board. Our fate will follow Newspapers in 2008, and the Sell-Side under MIFID II.

Our next few pieces of content will build off of our concerns stemming from “Less Is More” in Investor Relations.

Next, we will discuss the times when good/strong Investor Relations is most valuable. After that, we will look at how market cap impacts the actual value / impact of Investor Relations. We will close our set with a real life example looking at Tesla and the importance of Investor Relations.