So it was with some concern that a reader wrote to me this week regarding the decision by the Financial Conduct Authority to remove the need for companies to report quarterly, usually in the form of so-called interim management statements. Now they will only need to report their half year results within two months of the period end, and final results within four.
The reader's main concern is that this could leave a four-and-a-half-month gap previously punctuated by the IMS in which a company will release no information. He worries that the vacuum could lead to adverse market movements, a concern also voiced by the CFA Society in their response to the FCA's consultation. "The absence of a statement reminding investors that 'everything is still on track' could lead to speculation between the half-year announcements that everything is not on track" it argued, suggesting the rule change may lead to more unscheduled updates, more share price volatility, and a higher cost of capital for companies to compensate for the increased uncertainty.
However, dissenting voices have been in the minority - although with only 20 respondents to the three-month consultation that took place over the summer, a cynic might suggest that the FCA hardly went to great lengths to publicise a proposed change being pushed by government. Certainly the trade bodies representing the fund management industry had no complaints - the ABI's specific response stretches to a mere 23 words - although as the CFA Society suggests, their members are likely to be less disadvantaged than private investors, who don’t enjoy the benefit of face-to-face meetings on management roadshows.
There are, in theory, good reasons for the removal of the quarterly reporting requirement - not least putting an end to short-termism, as the eminent market-watcher John Kay recommended in his eponymous review (we too support initiatives to encourage long-termism, if not rushed legislative change). And the fact remains that many interim statements were half-hearted efforts of limited use anyway, presumably because reporting is a costly and time-consuming business that shareholders ultimately pay for. We only commit to reporting half- and full-year results, as interim statements rarely contain the depth of financial information our analytical approach requires.
But as the CFA Society suggests, the IMS's are indeed a "useful touchpoint" to make sure everything is on track, and the onus will be on reporting companies to remain at least as transparent as they were previously to prevent panics. I suspect many will maintain the status quo as a result - and private investors should apply the pressure to make sure they do so.
