Companies that give no quarter
Hong Kong Exchanges and Clearing (HKEx) may pride itself on operating one of the leading stock exchanges in the world, but on one basic standard - quarterly reporting - it is out of sync with bourses in New York, Frankfurt, Tokyo, Singapore and even the mainland. Many stock exchanges require it; Hong Kong's doesn't.
Quarterly reporting falls under the Code on Corporate Governance, a non-mandatory guideline to best practices introduced by the HKEx in 2005. Because it is non-mandatory, few Hong Kong listed companies do quarterly reports, although the HKEx, as a listed company, does.
Other Hong Kong-listed firms that issue quarterly reports are mostly required to by regulations in other areas, such as H-share companies trading on the mainland.
Those companies also listed in London - such as HSBC and Standard Chartered - are required to publish quarterly reports of performance and developments but do not need to include financial statements.
Every so often, the exchange circles this issue with slow-motion deliberation and, after years, lurches to the same non-conclusion.
In August 2007, the HKEx launched a market consultation on, among other things, mandatory quarterly reporting for companies listed on the main board. Nearly 41/2 years later, the issue is still pending.
A similar proposal was launched in January 2002 but was abandoned because of opposition from listed companies. The current six-month reporting window gives firms more time to manage bad results.
The way these proposals are shot down says a lot about the influence covertly exerted on the exchange. Interested parties have successfully lobbied against quarterly reporting, but who are they and what are their reasons?
After all, it is hard to dismiss the common sense of increased disclosure. They provide current, detailed data that lets people make informed investment decisions. This is critical in today's volatile markets.
However, some argue that quarterly reporting is unnecessarily burdensome as it could be entirely substituted by regular disclosures of price-sensitive information.
This sounds fine in theory, but it is up to the company to decide what it discloses - and when - and the issue of what information is price sensitive could be subject to debate.
For example, even HSBC, which generally has good disclosure and well-oiled investor-relations machinery, managed to catch the markets off guard when it reported worse-than-expected results for the third quarter last year in its interim management statement (which, to its credit, did contain detailed financial information), triggering a 9.1 per cent fall in its share price the following day.
More often than not, even if such disclosures are made, the level of detail is nowhere near that of financial statements.
For instance, Standard Chartered's interim management statement for the third quarter last year contained no financial statements and offered vague references to its financial performance: 'Income in the first nine months of 2011 has grown by a high single digit percentage over the first nine months of 2010. Over the same period, operating profit before tax grew at a double-digit rate.'
Some say that quarterly reporting will lead management to focus on the short term and higher price volatility as investors react prematurely to bad news. While true to a certain extent, markets on the whole are probably sophisticated enough to differentiate between short-term and long-term underperformance.
Quarterly reporting forces management to address problems quickly, rather than hiding or deferring them, since many companies reporting bad results often announce remedial actions such as layoffs, revised strategies or new management to demonstrate they are doing something to shore up their dismal performance.
Quarterly reporting does involve extra costs and management time. However, listed companies should already have in place systems that track financials on a monthly basis. As such, it should not be overly costly or time consuming to orientate such systems towards quarterly reporting. Any company that says otherwise could be implying that its accounting systems are not up to scratch.
Let's hope this is not the end of the issue, and that HKEx will continue to persevere and prevail over the pro-business lobby on mandatory quarterly reporting.