In the two years since Nasdaq published our blueprint to revitalize the U.S. capital markets we’ve seen much progress, thanks to the input and strong voices of our listed companies. We remain fully committed to advancing industry dialogue that brings solutions to challenges our issuer community faces. In particular, many have highlighted to us deep concerns about policies that drive the increasing pressure on executives to prioritize short-term returns over long-term strategic growth. Below are several recent developments around this complex set of issues:
Nasdaq Supports Reforms that Promote a Long-term Perspective
Last month, we were invited to an SEC Roundtable, Short-Term / Long-Term Management of Public Companies, Our Periodic Reporting System and Regulatory Requirements, where we urged the SEC to:
- Enhance transparency around proxy advisors and activist investing
- Increase the flexibility of reporting obligations and make the Form 10-Q optional for those companies that provide detailed quarterly earnings releases
- Recognize the value of dual class structures
- Adopt a short interest transparency regime to match long position disclosures
- Allow for continued use of buybacks as a tool for capital allocation
Client Survey Shows Impact of Short-termism
During the roundtable and in our related comment letter, we provided data gathered from nearly 200 Nasdaq clients earlier this year. It is evident that the market’s focus on short-term returns is sharply in contrast to how listed companies view their own businesses. Below are select findings from the survey raised in our comment letter:
- Companies feel pressure from short-term investors, with almost 50% reporting that they experience business constraints around long-term investments
- 47% of responding companies report that their executive management evaluates their business over an 18-36 month horizon; an additional 31% evaluates the business based on a horizon of 3 years or more
- Similarly, 45% of the companies report that their board of directors evaluate the business over an 18-36 month horizon and 39%, a horizon of 3 years or more
We are encouraged by the SEC’s attention to the challenges of short-termism and its impact to listed companies.
Additional Momentum Supports Public Company Environment
Below are some other recent developments that support the momentum around improving the environment for public companies:
- The SEC’s 3-2 vote last week on new guidance clarifying that proxy advisory firms have a legal obligation to provide complete and accurate information. The SEC also issued guidance to asset managers outlining their responsibilities for any potential factual errors or weaknesses in analysis from a proxy adviser. SEC staff said the guidance is meant to clarify that proxy advisers must thoroughly disclose potential conflicts of interest. SEC Chairman Clayton described the proposals as the first step in a revamp of proxy voting.
- The SEC’s proposed rule amendments to modernize Regulation S-K disclosures, which are intended to reduce compliance costs for public companies and improve disclosures for investors.
- H.R. 2899 was introduced in the Senate by Sen. John Kennedy (R-LA) as a companion to the Main Street Growth Act introduced by Reps. Tom Emmer (R-MN) and Vicente Gonzalez (D-TX) in the House earlier this summer. The bill is aimed at improving capital formation, liquidity and the market structure experience for smaller companies.
- Legislation was introduced to require the SEC to implement rules simplifying the quarterly financial reporting regime by making the Form 10-Q optional, sponsored by Rep. Ann Wagner (R-MO).
- A letter was sent from Reps. Gregory Meeks (D-NY) and Sean Duffy (R-WI) to SEC Chairman Jay Clayton requesting strong action to reform the proxy advisory firm industry. Nasdaq and a broader coalition supported content in the letter.
- My op-ed with BIO CEO Jim Greenwood urging Congress to enact legislation to reform short-sale disclosure.
- Nasdaq’s comment letters to the SEC commending their consideration of ways to reduce compliance burdens for public companies while maintaining important investor protections through: proposed amendments to exclude certain smaller reporting companies from the definitions of accelerated and large accelerated filers, and proposed amendments to financial disclosures related to acquisitions and dispositions of businesses.
Nasdaq is Committed to Advancing the Debate
Nasdaq continues to advocate on our clients’ behalf—pushing for these reforms and others that will help make our markets more resilient, improve the experience for public companies, and benefit their long-term investors.