A shake-up could finally be coming for quarterly earnings, and could rattle an ecosystem full of white-collar workers plying their trade as lawyers, communications pros, and data providers.
The push for fewer earnings reports ramped up last fall, after President Donald Trump asked the Securities and Exchange Commission to investigate whether fewer earnings reports might benefit companies. The regulator is now preparing a proposal to eliminate the requirement to report earnings every three months and instead give companies the option to share results twice a year, The Wall Street Journal reported Monday.
For decades, quarterly earnings have been a core Wall Street ritual, forcing companies to lift the hood and show investors what’s happening through hard numbers. Many CEOs have long argued that the process is costly and time-consuming and encourages short-term thinking.
There’s evidence that some companies agree. In 2019, after Trump first asked the SEC to explore the issue, the Nasdaq found that three-quarters of the 180 companies it surveyed favored a switch to semi-annual reporting, according to results posted on the SEC’s website. This initial effort ultimately stalled.
But the costs of these reporting efforts don’t just burden companies; they also support a sprawling ecosystem. Preparing a single release can take weeks and pull in dozens of people across legal, accounting, and communications teams. The money spent on earnings underwrites thousands of white-collar jobs, many already under pressure from artificial intelligence and a slowing economy.
Business Insider sought to understand what would happen to the professionals that prop up the earnings ecosystem, from investor relations professionals to finance data providers, last September, when this debate kicked off.
Here’s what people with knowledge of the process had to say, as well as what companies and professional associations said in response to the SEC’s 2019 request for comment on the pros and cons of fewer earnings reports.
Companies could field more investor questions
Investor relations and communications professionals play a key role in quarterly earnings by making sure a company’s story — financial results, growth prospects, risks, and strategy — is clearly conveyed to investors, analysts, regulators, and the media.
Reducing earnings, however, might not make their jobs easier, said Matthew Brusch, president and CEO of NIRI, an association for investor relations professionals.
“Investors won’t simply just stop asking for the information,” said Brusch, who previously worked in IR. “In my experience, investors never want less information,” he said, adding that he expects many companies would continue to report earnings quarterly even if given the opportunity to report just twice a year.
Indeed, a change might even add value to people whose job it is to break into companies, such as Wall Street equity research analysts, who make stock recommendations. A 2018 survey by the CFA Institute found that 82% of investor respondents strongly agreed that they would “struggle to locate information” if earnings reporting requirements were reduced.
Most investors surveyed also agreed that the benefits of quarterly earnings outweighed the costs.
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The biggest winners
Theoretically, the biggest beneficiaries of fewer earnings reports would be C-Suite executives, like the CEO and CFO, who would have more time to focus on operations, capital raising, and other big-picture initiatives.
Nasdaq’s 2019 survey showed that the average company said it spent about 852.95 hours a quarter on earnings. That’s more than two weeks per person per quarter, assuming a 10-person team. Reducing corporate earnings to just twice a year would therefore give the average executive an entire month back, which could be spent on other things.
Experts who spoke to Business Insider said they don’t see it playing out this way, however. They pointed to the EU and other regions where many companies continue to report earnings quarterly despite twice-a-year reporting requirements.
“Do you really think management’s going to say, ‘Hey, just because we don’t have to report to the outside, I only want to look at my business every six months?'” Sandy Peters, senior head of global advocacy at the CFA Institute, said. “Probably not.”
The biggest losers
The biggest losers, people said, may be for-hire professionals called in on an ad-hoc basis to help pull quarterly earnings together, including corporate lawyers and auditors.
In response to the SEC’s 2019 request for comment on this issue, the Society for Corporate Governance filed a report showing that the costs associated with lawyers and accountants were among the most common concerns.
“Significant diversion of legal and finance/accounting team resources, plus expense of lawyers and accountants,” the organization’s SEC filing said, quoting a member.
“Audit firm fees” ranked as a top cost of preparing earnings reports among the 146 members who responded to the organization’s survey.
The Nasdaq survey said that companies reported paying an average of $334,697.63 a quarter on earnings, with at least one respondent citing quarterly costs as high as $7 million.
Ripple effects for data providers
Reducing earnings requirements could also impact professionals who make money off them, including financial services data providers.
On LinkedIn, Daniel Goldberg asked colleagues in the alternative data world if a potential change would be good or bad for their industry. A vast majority of the dozens of respondents thought the fewer corporate reports would mean more business for them.
“With semi-annual reporting, the unmatched transparency of real-time data could spark a surge in alternative data adoption,” said Goldberg, the former chief data strategy officer at Coresight Research who now works as an independent consultant.
But there is a downside for an industry that’s reliant on hedge funds for a sizable chunk of its revenues, he said
“Fewer earnings events would mean fewer trading catalysts — a potential challenge for hedge funds chasing alpha,” said Goldberg.
Rado Lipus, the founder of data consultancy Neudata, said “hedge funds are still very reliant on traditional products such as consensus estimates data,” and plenty of alternative datasets use “earnings calls as the input to create their product.” Ravenpack, an alternative data provider, has an earnings call analytics product that uses natural language processing tools to judge the sentiment of the executives speaking on a call, for example.
But the biggest immediate impact of changing quarterly earnings could be to hedge funds themselves, said Marc Greenberg, a former executive at Steve Cohen’s Point72 who now runs a training firm called Greener Pastures.
“It’s the best time of the year to make money as a hedge fund,” he said.
