On November 17, 2016 the Investment Association (IA) published a Public Position Statement providing its view on quarterly reports and the issuance of quarterly earnings guidance. The Statement calls for companies to cease reporting quarterly and refocus reporting on a broader range of strategic issues.
When developing its Productivity Action Plan, published in March 2016, IA members widely referred to quarterly reporting as a distraction that shifted company resources away from long-term strategic considerations. In particular, members expressed concern at the potential for the practice to promote myopic behaviour by senior management by channelling its focus on short-term fluctuations in performance - resulting in the risk of it managing the market, rather than managing the business.
The IA notes that the Transparency Directive, which has removed mandatory quarterly reporting requirements, came into force in November 2013 and was enacted into UK law in May 2014. Since it is no longer required, the IA is calling for companies to cease reporting quarterly and refocus reporting on a broader range of strategic issues. Companies should focus on improvements in reporting on the long-term drivers of sustainable value creation and shift resources towards improved reporting on long-term strategy and capital management. The IA encourages companies to review how their current reporting cycle is adding value, and to make necessary amendments to ensure it is appropriately focused on the long-term drivers of productive growth within the business. For those companies that believe it is important to continue to report quarterly, either due to competitive market pressures or shorter market cycles, the IA asks that they publicly explain this position, and how it is relevant to the achievement of their long-term strategy.
Going forward, the IA’s Institutional Voting Information Service (IVIS) will monitor each company’s approach to reporting and outline to IA members which companies continue to report on a quarterly basis and provide the company’s public explanation.
Additionally, in the coming months, the IA will host a series of round tables to discuss the benefits and challenges associated with ending quarterly reporting. Following these round tables, the IA will issue a guidance document on the issues raised.
(IA, Public Position Statement: Quarterly Reporting and Quarterly Earnings Guidance, 17.11.16)