Only banks should continue with quarterly earnings reports: Signature Bank Chairman
The practice of disclosing quarterly earnings estimates should be eliminated from the American economic system – with one exception, according to Signature Bank Chairman Scott Shay.
“The whole idea of quarterly earnings is part of a real disease that the American economy has of short-termism,” Shay told Liz Claman during a FOX Business interview on Monday.
The exception to the rule, Shay says, should apply only to banks because quarterly balance sheets reporting ensure investors that their money is safe.
The Securities Exchange Act of 1934 requires all publicly-traded companies to file quarterly earnings reports with the Securities and Exchange Commission (SEC).
President Trump on Friday pushed for an end to quarterly earnings reports, suggesting that a six-month system would give businesses a greater amount of flexibility.
“In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. ‘Stop quarterly reporting & go to a six month system,’ said one. That would allow greater flexibility & save money. I have asked the SEC to study!,” he wrote in a tweet.
In a Wall Street Journal op-ed, J.P. Morgan CEO Jamie Dimon and Berkshire Hathaway Chairman Warren Buffett encouraged all publicly-traded companies to do away with quarterly earnings-per-share guidance. The two business leaders say quarterly earnings reporting focuses too much on the short-term profits and has contributed to the reduction of publicly-traded American companies.
“The pressure to meet short-term earnings estimates has contributed to the decline in the number of public companies in America over the past two decades,” Dimon and Buffett wrote in June.
There are 3,600 publicly-traded companies in the U.S., down more than half from 1997.
For the sake of the U.S. economy, Shaye said, corporations need to be at the forefront of investments that will produce long-term results.
“We need to start thinking long-term about making investments in things like quantum computing, A.I., all sorts of things which are not going to produce results in the near term,” he said on “Countdown to the Closing Bell.”
Tesla CEO Elon Musk echoed the same earnings reporting estimate sentiment in a letter to his employees, arguing that quarterly earnings forced him and company leaders to make short-term decisions that are not necessarily the best thing for the company long-term.
“Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term,” Musk wrote on August 7th.
Shaye said that Musk is one of the reasons why companies are refusing to go public.
“I mean he is almost the poster child. He wants to go back to being private. He yearns for being a unicorn again,” Shaye said.