We have seen this movie before. In 2018, the U.S. Securities and Exchange Commission (SEC) sought public comments on a proposal to cease quarterly reporting requirements and move to a semi-annual cadence, partly to reduce short-termism in the market. In the end, the SEC chose to maintain the system current at that time. Fast forward to 2025 and here we are again, discussing the potential of moving to semi-annual reporting similar to some other jurisdictions like the European Union and the United Kingdom. Additional consultations on the topic are expected in Canada in 2026, as indicated by the Canadian Securities Administrators (CSA). Seven years ago, the response from the investment community was largely negative, and I would expect this sentiment to persist if, and when, we have a concrete proposal from the SEC.
As the theory goes, reduce the compliance burden of quarterly reporting and executives will have more time to focus on long-term strategy, while also decreasing operational costs. This is convenient for the current administration and sounds good on paper. However, if short-termism is really the problem, I would argue that altering the reporting frequency is far from the best solution.
The Investor Need for Quarterly Reporting
Capital markets already suffer from information asymmetry between Boards and management – and investors even more so. Decreasing the level of transparency with semi-annual reporting will make things harder for investors in a variety of ways.[1] There will certainly be many operational and legal challenges for issuers, but, for this article, I will focus on the investor perspective.
The Importance of Timeliness
Investors have come to depend on quarterly updates to monitor a company’s financial health. This builds credibility and trust in the market compared to a longer period of silence when investors are unable to access up-to-date performance data.
A key consideration around the timeliness of information is managing the risk of selective disclosure during investor relations activities. If semi-annual reporting is adopted, companies can expect to face more inbound questions and the potential for market rumours likely increases as well. Issuers will need to manage this carefully and ensure that all investors have access to the same information at all times. This could mean that the savings assumed by a decrease in formal regulatory reporting are offset by an increase in more informal investor relations activities. Semi-annual reporting could also mean more frequent press releases for material updates in between reporting periods.
Transparency & Accountability
Quarterly updates bring focus and attention from investors and Boards alike. From an investor perspective, it is hard to imagine how corporate directors would provide adequate oversight with less frequent reporting. Boards can identify issues early on and/or aid management in solving challenges while spotting trends. The transparency provided by quarterly reporting is inextricably linked to holding management accountable and is a key feature of the capital markets. Investors require this in order to preserve their ability to respond to market dynamics in a timely way and protect client interests.
If directors continue to receive quarterly updates even under a semi-annual reporting regime, I once again question exactly what savings will be realized in the end. If there is a lack of public transparency, investors are likely to seek out alternative sources of information even more than they already do. Such sources may or may not be accurate, but investors may be more inclined to act on them in the absence of company-reported data.
Transparency is also necessary for adequate price discovery in efficient markets. An underlying tenet of the public markets is that all known information is factored into a company’s share price. Therefore, a reduction in company-reported data is likely to lead to inefficiencies in the market and could create more volatility and potentially an increase in the cost of capital.
Alternative Solutions to Short Termism
If short-termism is the problem that regulators are trying to fix, we need to seriously consider whether reporting frequency is the best solution. The difference between three and six months is highly unlikely to change underlying corporate behaviour in a meaningful way.
However, we know that executives do what they are financially incentivized to do. Yet the dominant compensation structure is a combination of base salary, annual incentives based on the past year’s results, and long-term incentives that rarely have performance measures going beyond a three-year time period. Even worse, stock options still dominate long-term incentive structures, which do not have performance conditions attached to them. In order to exercise stock options, the share price only needs to be one penny above the exercise price, which does not serve as an incentive for building long-term shareholder value.
If we were serious about focusing on long-term strategic decisions, we would redesign compensation structures and strive to have CEOs in place for longer than five years. Boards could look to structures that go beyond the standard three-year time horizon and are truly aligned with long-term share price performance. Such compensation could also extend into retirement with mandatory hold periods well beyond the CEO’s tenure to encourage long-term strategic decisions. Finally, performance shares would slowly replace stock options as the dominant form of long-term awards.
Fine-tuning compensation structures seems to be a more palatable option than dismantling the infrastructure around quarterly reporting – not only for investors and companies but also for financial intermediaries. As investors are faced with additional comment periods both in Canada and the U.S. on this topic, we will find out if investor sentiment has changed from earlier proposals. If it hasn’t, regulators will have some tough decisions to make when balancing a range of competing interests.
Jennifer Coulson is Vice President, ESG, Public Markets, at BCI.