US investors not keen on UK’s move
Print Edition
As investors prepare to digest the latest round of company earnings figures, Britain’s move to scrap the quarterly reporting requirement has revealed a divergence of opinion between the domestic and US investment communities.
While British investors endorse what they perceive as a measure against short-termism, their counterparts across the Atlantic are concerned that less frequent company reports will mean less transparency.
In a world of increasing financial regulation, Britain is bucking the trend by accelerating European Union plans to relax the current reporting rules, which are especially onerous for small firms.
“A desire to not disappoint the markets, when you are speaking to the markets every three months, will inevitably lead to the business making short-term decisions to the detriment of long-term shareholders,” said Kevin Murphy, a fund manager at Schroders, one of Britain’s biggest asset management companies.
All eight British fund managers interviewed by Reuters supported the rule change.
Some corporate heavyweights have already made moves away from the treadmill of quarterly reporting.
Germany’s Porsche was involved in a high-profile dispute between 2001 and 2008 with Deutsche Boerse, operator of the Frankfurt Stock Exchange, after refusing to comply with the requirement to issue quarterly reports.
Paul Polman, CEO since 2009 of Anglo-Dutch consumer goods giant Unilever, the seventh biggest firm on the London Stock Exchange, is a critic of what he calls “quarterly capitalism.” He has changed Unilever’s reporting so that full bottom-line figures are given just twice per year.
Under the newly relaxed rules companies could of course choose to continue issuing quarterly statements, but early signs suggest that many would stop.
In a December poll of Britain’s 350 biggest companies by the ICSA, a trade body, and the Financial Times, 20 percent of respondents said they would scrap the practice, while 23 percent said they would continue and 53 percent were undecided.
The idea of scrapping quarterly reporting was put forward by economist John Kay in a 2012 review, which pressed for less short-termism in equity markets and was widely endorsed in Britain, both by parliamentarians and investors.
But Kay said that US investors, who form the largest group of foreign shareholders in British companies, were less keen, worrying this kind of deregulation could make companies more opaque.
Though many in the US agreed with Kay about the damage caused by the quarterly earnings cycle, “the suggestion that the requirement might actually go is something that even many people who take that view look at with horror,” he said.
That horror just might deter companies with a strong US presence from changing their practices.
And for the 26 British-listed firms with secondary US listings, which represent over 2 trillion pounds (US$3.29 trillion) on the London Stock Exchange, there may be extra pressure to meet quarterly reporting hopes, though they are not required to do so under US law.
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