Rejoice! Rejoice! You lucky, lucky people. All you European IROs who have been sulking in the corner, disconsolately kicking your heels while waiting for the next half-year earnings report to come due, take heart. The lovely people at the European Union are moving ahead with a plan for all EU listed companies to issue quarterly reports to the market.
Strangely, some members of the corporate community don’t feel so enthusiastic about this. Indeed some observers, particularly in the UK, have become increasingly vociferous in a bid to dissuade Brussels from going down the quarterly reporting path. In Germany too, corporate leaders at companies like Porsche and Deutsche Bank have made outspoken comments about the downside of quarterlies.
All, it seems, to no avail. The EU’s plans form part of what is known as the Transparency Obligations directive, itself part of the wider move toward an integrated European financial market by 2005. It looks as if the Transparency directive will require companies to publish basic financial information every three months – turnover, P&L and the like – but will stop well short of the more detailed US model of quarterly reporting.
Much of the opposition to quarterly reporting stems from fears that it will lead to short-termism or will encourage companies to manipulate figures to meet the artificially imposed deadline. The Association of British Insurers is concerned that quarterly reporting might become a substitute for the speedy ad hoc disclosure of price-sensitive information, with companies choosing to withhold information from the market until the next reporting period.
In reality, few of the arguments against quarterly reporting hold up. Fears that it might reduce timely ad hoc disclosure could apply equally to other, less regular periodic reporting. Similarly, interims could just as easily be accused of encouraging companies to manipulate figures in order to meet a deadline. But no-one is suggesting that we should rely exclusively on ad hoc disclosure and ditch periodic reporting.
The greatest concern revolves around short-termism. Certainly, there are investors and companies that will focus on the next big reporting fix but, in the longer term, both should be punished by their respective customers. The winners will be those who focus on the long term, regardless of the pressures from the market.
Those IROs still out of the quarterly reporting loop may feel the hardest done by if their reporting workload substantially increases. Such resistance is understandable but the more frenetic reporting calendar will, at least, afford IROs more opportunity to talk around their official releases – providing background and explanation to investors they would otherwise have missed. The threat of legal action over selective disclosure already means best practice has moved beyond quarterlies; monthly trading updates are now standard.
Lazier IROs might console themselves with the fact that the EU is not pursuing the original route of full-blown, US-style quarterlies. That might well have been a step too high for some European corporates at this stage but it is probably a missed opportunity for the EU. Smaller companies in particular (yes, those companies that are a riskier proposition for investors) get away with providing little more than net turnover and a P&L. There is no requirement to explain what they are actually up to, or to give guidance on future earnings.
Chances are the EU is going to have to revisit the whole debate fairly soon in order to toughen up reporting requirements once more. The move toward quarterly reporting is a step in the right direction but the EU’s version does little to help investors clear away the fog of the future.
Still, it’s not bad for the EU. Quarterly reporting has only been done in the US for 57 years. Given another half century, the EU might actually start to force the reporting agenda for its listed companies instead of playing catch-up.
