SEC Takes On Short- Vs. Long-termism
By Eve Tahmincioglu
May 21, 2019
Securities & Exchange Commission Chairman Jay Clayton talks to
Directors & Boards about bolstering long-term thinking, ESG,
quarterly reporting, and disclosure.
This week, the
Securities & Exchange Commission (SEC) Chairman Jay Clayton announced
he has directed the agency to hold a roundtable this summer to delve
into the impact of short-termism.
While a date and agenda for the event have yet to be finalized,
Clayton tells Directors & Boards that the event will “explore
whether short-termism should be a concern and, if so, what are its
causes and what can and should be done from a regulatory perspective
The topics of short- vs. long-termism; environmental, social and
governance; and disclosures are the focus of an in-depth interview
with Clayton that will appear in the upcoming issue of Directors &
Here’s an excerpt:
Q. Short-termism is seen as a major factor undermining corporations
and the greater community today, and it’s something you’ve been vocal
about. How do you see short-termism impacting what you’ve said is the
SEC’s mission to protect investors; maintain fair, orderly and
efficient markets; and facilitate capital formation?
A. If by short-termism you mean companies, in response to market and
other pressures, pursuing short-term objectives to the detriment of
long-term performance, it bothers me. It principally bothers me
because that type of short-term perspective generally is inconsistent
with the investment objectives of our Main Street investors. In
addition, if our public capital markets are overly short-term focused,
that perspective may undermine capital formation in our public
Q. Some critics have argued that the SEC has been dropping the ball
when it comes to disclosure mandates needed for information that could
impact a company longer term, especially ESG disclosure. You’ve been
quoted as saying that ESG disclosure by publicly traded companies
should not be required. Do you still believe this is the case and why?
A. As an overarching principle, I believe our disclosure rules and
guidance, and our issuers, should focus on the information that a
reasonable investor needs to make informed investment and voting
decisions. This perspective often is referred to as the “materiality”
based approach to disclosure regulation. This has been the
commission’s perspective for 84 years and it has served our investors
and markets very well. Keeping that perspective in mind is critical to
our mission. More specifically, and turning to your ESG question, we
need to keep in mind that not all ESG matters are created equal — in
fact, they are quite different and are different in multiple ways.
Q. What is the SEC doing under your leadership to combat short-termism
and boost long-term thinking in corporate America?
A. We recently announced that our staff will hold a roundtable this
summer that will seek to explore whether short-termism should be a
concern and, if so, what are its causes and what can and should be
done from a regulatory perspective in response. We also intend to
facilitate conversations on whether there are market-based initiatives
and regulatory changes that could ensure an appropriate balance
between short-term and long-term perspectives in our public capital
The SEC’s summer roundtable will address many of these issues. Clayton
says they will include:
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 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.
interested in attending the SEC roundtable contact SEC staff at
THE INDEPENDENT VOICE
OF PUBLIC COMPANY GOVERNANCE
Directors & Boards
is a quarterly journal dedicated to the topics of leadership
and corporate governance.