It’s a tradition in business unlike any other—and now it is on the verge of going away.
Quarterly earnings reporting, that three-month ritual every public firm has participated in since 1970, is about to be sacrificed by the SEC in the name of easing firms’ regulatory burden and financial pressure to show short-term results. Going forward, companies will likely be required to report earnings only every six months, or just twice annually, if they so choose. It’s a small change, but one that has major ramifications for corporate leaders, board directors, investors, regulators, and other stakeholders.
Critics like David Larcker, director of the Corporate Governance Research Initiative at the Stanford Graduate School of Business, say a biannual reporting schedule will introduce even more uncertainty and risk—at a time when both are rising exponentially because of AI, geopolitics, and more—into business performance and financial markets. Pointing to the subprime market collapse and the dot-com bust, Larcker says the idea that eliminating quarterly reporting will reduce short-termism is fundamentally flawed. “Delayed disclosure only ensures that problems surface later, and more violently,” he says.
Reduced transparency will also make it harder for investors to judge performance, say critics. That’s especially true for passive investors in retirement accounts or individuals who invest on their own. Unlike large institutional investors and hedge funds with access to management and information, retail investors must rely on publicly available data to make decisions. “Average shareholders will end up having to interpret signals from the media and analysts that may be less than accurate,” says Kim Van Der Zon, vice chair of global board and CEO services at Korn Ferry.
But the move to a six-month reporting schedule does have plenty of supporters. For firms that are going through a turnaround or transformation—which is pretty much every firm in the AI era—extending the reporting timeline could give CEOs more time to execute their visions, says Claudia Pici Morris, North American leader of the Board and CEO Succession practice for Korn Ferry. As evidenced by the torrid pace of CEO turnover over the last two years, boards are moving faster and taking fewer risks with leaders, says Pici Morris. “Now, instead of CEOs getting two quarters to prove themselves, maybe they’ll get at least a year,” she says.
Moreover, even if firms report their official earnings less often, they don’t have to decrease their overall communication and engagement with stakeholders. Some experts predict a return to issuing earnings or other financial guidance—only about one in five S&P 500 firms currently do so—to fill in the gaps between reports, for instance.
To be sure, firms will likely increase their messaging cadence, if for no other reason than to maintain trust and keep agitators at bay, says Daniel Yunger, a partner at strategic-communications firm Kekst CNC who leads client engagements in M&A, activism preparedness, and proxy campaigns. Yunger says activists thrive on information gaps, filling the void with their own narratives. “Boards and CEOs will need to keep investors close and informed,” he notes, “otherwise activists will define the story.”
