Our capital markets benefit from a level of retail investor participation that is unparalleled among the world’s large industrialized countries. Our Main Street investors who, day in and day out, put their hard-earned money to work for the long term are the reason why we have the deepest, most dynamic and most liquid capital markets in the world.
Today’s Main Street investors have a substantial responsibility to fund their own retirement and other financial needs. As a result of increased life expectancy and a shift from defined benefit plans (e.g., pensions) to defined contribution plans (e.g., 401(k)s and IRAs), the investing interests and needs of our Main Street investors have changed. Put simply, our Main Street investors are more than ever focused on long-term results. We also must recognize that our Main Street investors who have entered retirement or have another expense, such as paying for tuition or an unforeseen event, need liquidity. In other words, at some point, long-term investors do become sellers.
The SEC’s disclosure rules should reflect and foster these needs—long-term perspective and liquidity when needed. Our public capital markets have a thirst for high-quality, timely and material information regarding company performance and corporate events. Our disclosure rules reflect that thirst for information and, in turn, the confidence of market participants in the quality and timeliness of public company disclosure fosters liquidity. But we should ask ourselves whether our disclosure framework and other regulations have encouraged a focus by companies—and not just securities traders—on the short-term over the long-term.
In December 2018, the Commission published a request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies. The request for comment highlighted questions that have been raised regarding the adequacy and appropriateness of mandated quarterly reporting and the prevalence of optional quarterly guidance. The request also asked for comments on whether and how our reporting system may be causing companies to disproportionally focus their time and resources on short-term results. I have directed the SEC staff to host a roundtable this summer to hear from investors, issuers, and other market participants about the impact of short-termism on our capital markets and whether our reporting system, or other aspects of our regulations, should be modified to address these concerns.
An undue focus on short-term results among companies may lead to inefficient allocation of capital, reduce long-term returns for Main Street investors, and encumber economic growth. While the problems associated with short-termism have garnered increased attention, there is a need for further dialogue on the causes of and potential solutions to the issue. The SEC staff roundtable will seek to explore the causes of short-termism and to facilitate conversations on what market-based initiatives and regulatory changes could foster a longer-term performance perspective in American companies.
SEC staff will announce the roundtable agenda items shortly. As they develop that agenda, I have asked the staff to consider the topics outlined below.
Potential Topics for Consideration
- The role, if any, that short-termism plays in the declining number of public companies. In particular, examining how the pressure on public companies to take a short-term focus in our markets may discourage private companies from going public could provide valuable insight into how to make our public markets more attractive and increase investment options for Main Street investors.
- Our ability to reduce burdens for companies while facilitating better disclosure for long-term Main Street investors. For example, I am interested in exploring whether the information typically included by companies in earnings releases could be allowed to satisfy certain quarterly reporting obligations and whether there are ways that quarterly disclosures could be streamlined. This is particularly the case in the first fiscal quarter when the the quarterly report often comes closely on the heels of the annual report.
- The potential for certain categories of reporting companies, such as smaller reporting companies, to be given flexibility to determine the frequency of their periodic reporting.
- Market practices that could be oriented to encourage longer-term thinking and investment at public companies. For example, it would be informative to explore the extent to which certain activist practices, such as “empty voting” (e.g., acquiring voting rights over shares but having little or no economic interest in the shares), are factors that drive short-term focus.
The roundtable date, agenda items, panelists, moderators, and logistical information will be made public as they are finalized.
Members of the public who wish to participate in the event should contact SEC staff at email@example.com. Members of the public who wish to provide views on the impacts of short-termism on our markets and whether our reporting system, or other aspects of our regulations, should be modified to address these concerns may submit comments electronically or on paper. Comments may be submitted either in advance of or after the roundtable. Please submit comments using only one method. Information that is submitted will become part of the public record and posted on the SEC’s website. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make publicly available.
Send paper comments to Vanessa A. Countryman, Acting Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, D.C. 20549-1090.
All submissions should refer to File Number S7-26-18, and the file number should be included on the subject line if email is used.
 Request for Comment on Earnings Releases and Quarterly Reports, Release No. 33-10588 (Dec. 18, 2018) [83 FR 65601 (December 21, 2018)]. The comment letters received in response to the request for comment are available at https://www.sec.gov/comments/s7-26-18/s72618.htm.
This statement was issued by Jay Clayton, chairman of the U.S. Securities and Exchange Commission, on May 20, 2019.