Quarterly reporting distorts, claims Kay

Marion Dakers
MANY investors are calling for quarterly reporting to be abolished as it encourages short-term decision-making, a government review into short-termism claimed yesterday.

The review, chaired by economics professor John Kay (pictured), said in its interim report that many respondents think reporting every three months encourages firms to pad the results with “useless or misleading” statements and figures.

“The noise – positive or negative – arising in response to quarterly interim management statements is an unwelcome distraction in the context of encouraging boards to focus on the long term development of the business,” Standard Life Investors told the review.

Insurance firms are being particularly hard hit by reporting rules, in the wake of the new Solvency II regulations, it added.

Lots of respondents also criticised mark to market accounting, which can be misleading by forcing firms to “mark to market assets and liabilities which they may have no intention of realising”.

Business secretary Vince Cable, who commissioned the review last year to examine the impact of equity markets on UK firms’ performance, said yesterday: “One of the big overriding themes in economic policy has to be generating – in both equity markets and corporate Britain generally – a belief in the importance of the long-term perspective.”

The review also said executive pay was a “principal source of friction” between groups representing shareholders and company managers.

Kay is expected to deliver his final report in the summer.