Corporate governance - The long and the short-term of it.

(From Financial Director)

Byline: Robert Bruce, leading commentator on accountancy issues.

Fashion makes fools of us all, ultimately. It is quite amazing how, just when one person thinks something has becoming terribly passe, lo and behold, someone else will think it is the bee's knees. And so it is with the issue of quarterly reporting.

In the US, companies have had to report corporate figures on a quarterly basis since 1946. But post-Enron and other disasters, the issue of short-termism has increasingly brought them to the understanding that the only thing quarterly reporting succeeds in doing is put everyone under pressure to produce figures which are, to put it mildly, pushing reality to the limits.

But Europe takes a different view. Just as the US is coming to its senses, the planners at the European Commission are losing theirs. A few weeks ago, the EC issued a document on how to bring about transparency in corporate reporting across Europe. And part of the answer, it transpired, is that we should all move to quarterly reporting. This, in light of the way thinking is moving in the US, is both sublime and daft. "The EC is purely following the US. It is 'me-too-ism' and it's a great pity," says one senior European regulator.

But surely the EC wouldn't make such a stupid mistake. Well, it just might. And if you read the proposals, you can see why. The EC lives in an unworldly ivory tower all its own, where the view is that business proceeds on the basis of an icy logic and never suffers from all the messy confusion that stems from human nature. The EC transparency requirements take note that people say that quarterly reporting leads to short-termism.

But it has the answer to that. They simply state that their proposals "will not give rise to short-termism". They talk a bit about the pressures of analysts, ever-increasing expectations, and all the other issues that result from quarterly reporting. But then they simply say that sensible companies will have no truck with such things. Stroll on.