* Britain to speed up quarterly reporting rule change
* Investors in Britain look for less short-termism
* U.S. investors worry about lack of transparency
By Jemima Kelly
LONDON, Jan 5 As investors prepare to digest the
latest round of company earnings figures, Britain's move to
scrap the quarterly reporting requirement has revealed a
divergence of opinion between the domestic and U.S. investment
While British investors endorse what they perceive as a
measure against short-termism, their counterparts across the
Atlantic are concerned that less frequent company reports will
mean less transparency.
In a world of increasing financial regulation, Britain is
bucking the trend by accelerating EU plans to relax the current
reporting rules, which are especially onerous for small firms.
"A desire to not disappoint the markets, when you are
speaking to the markets every three months, will inevitably lead
to the business making short-term decisions to the detriment of
long-term shareholders," said Kevin Murphy, a fund manager at
Schroders, one of Britain's biggest asset management companies.
All eight British fund managers interviewed by Reuters for
this article supported the rule change.
Some corporate heavyweights have already made moves away
from the treadmill of quarterly reporting.
Germany's Porsche was involved in a high-profile
dispute between 2001 and 2008 with Deutsche Boerse, operator of
the Frankfurt Stock Exchange, after refusing to comply with the
requirement to issue quarterly reports.
Paul Polman, CEO since 2009 of Anglo-Dutch consumer goods
giant Unilever , the seventh biggest firm on
the London Stock Exchange, is a critic of what he calls
"quarterly capitalism". He has changed Unilever's reporting so
that full bottom-line figures are given just twice per year.
Under the newly relaxed rules companies could of course
choose to continue issuing quarterly statements, but early signs
suggest that many would stop.
In a December poll of Britain's 350 biggest companies by the
ICSA, a trade body, and the Financial Times, 20 percent of
respondents said they would scrap the practice, while 23 percent
said they would continue and 53 percent were undecided.
The idea of scrapping quarterly reporting was put forward by
economist John Kay in a 2012 review, which pressed for less
short-termism in equity markets and was widely endorsed in
Britain, both by parliamentarians and investors.
But Kay said that U.S. investors, who form the largest group
of foreign shareholders in British companies, were less
enthusiastic, worrying that this kind of deregulation could make
companies more opaque.
Though many in the United States agreed with Kay about the
damage caused by the quarterly earnings cycle, "the suggestion
that the requirement might actually go is something that even
many people who take that view look at with horror," he said.
That horror just might deter companies with a strong U.S.
presence from changing their practices.
And for the 26 British-listed companies with secondary U.S.
listings, which represent more than 2 trillion pounds ($3.29
trillion) on the London Stock Exchange, there may be extra
pressure to meet quarterly reporting expectations, though they
are not required to do so under U.S. law.
"The notion that information disclosure is the answer to
most problems is even more heavily ingrained, I think, in the
U.S. than it is here," Kay said.
In the United States, companies have had to issue quarterly
reports for decades, whereas the requirement was only formally
introduced in Britain in 2007 as part of the EU's Transparency
It is that directive which is currently being amended, as
announced by the European Commission in June.
Early this year the British government will bring in
legislation to allow it to axe the quarterly reporting
requirement ahead of the EU's November 2015 deadline.
The European Commission said it wanted to encourage
long-term investment but also to lessen the administrative
burden for small- and medium-sized companies, for which the cost
of regulatory compliance eats up a bigger slice of outgoings.
The rule change might also encourage private companies to
list shares for the first time.
"[Quarterly reporting] is part of the regulatory burden
associated with listing which means that some companies that
might otherwise consider equity finance might not do so," said
Leo Ringer of the Confederation of British Industry.
But it seems likely that firms with a large proportion of
U.S. investors will be wary of doing away with the practice.
Sammy Simnegar of U.S. asset manager Fidelity, 18 percent of
whose billion-dollar International Capital Appreciation Fund is
invested in British companies, said that the relaxation in
reporting rules would impair the transparency that Britain is
renowned for and would be a "move in the wrong direction" for
"You don't want to be doing something that puts you one step
behind," he said. "You want to be best in class."