U.S. public companies urged to make forward-looking disclosures regarding COVID-19 plans
As many U.S. public companies are preparing to issue earnings releases and conduct analyst and investor calls, the chair of the U.S. Securities and Exchange Commission (the “SEC”) and the director of the SEC’s Division of Corporation Finance have issued a joint statement urging companies to provide “robust, forward-looking disclosure” along with “as much information as is practicable” regarding their current financial and operating status.
The statement acknowledges that there is greater legal risk associated with providing forward-looking information but urges companies to avail themselves of the safe harbors for forward-looking statements under Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. While the SEC is not expanding those safe harbors (and the statement does not constitute a “rule, regulation, or statement of the SEC”), SEC Chair Jay Clayton and Corporation Finance Director Bill Hinman do not expect the SEC to “second guess good faith attempts to provide investors and other market participants appropriately framed forward-looking information.” The statement also recognizes that, particularly at this time, actual financial and operational results may, in many cases, differ substantially from what would now appear to be reasonable estimates.
Chair Clayton and Director Hinman acknowledge one unusual purpose for urging such information now: the broad dissemination and exchange of firm-specific plans for addressing the effects of COVID-19 under various scenarios could substantially contribute to the country’s collective effort to fight and recover from COVID-19. As an example, the statement says that if an industrial laundry business becomes comfortable that the hotel industry is about to pursue a credible plan for increasing activity, the laundry business may be less likely to furlough (or may plan to rehire) employees. More broadly, when a company articulates its strategy publicly, it gives investors and the public a heightened level of confidence and understanding, which reduces risk aversion and facilitates action.
Other key points made in the statement include:
Companies should provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning. Among other things, companies should consider disclosing: details about current liquidity positions and expected financial resource needs; the impact on operations of company efforts to protect worker health and well-being and customer safety; and the effect of any financial assistance the company receives or expects to receive under COVID-19-related federal and state programs.
Historical information may be relatively less significant under current circumstances than it usually would. Company disclosures should respond to investor interest in:
- Where the company stands today, operationally and financially;
- How the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing; and
- How its operations and financial condition may change as all the efforts to fight COVID-19 progress.
- Companies are urged not to resort to generic, or boilerplate, disclosures that do little to inform investors of company-specific status, operational strategies and risks.
The statement follows disclosure guidance that was issued by Corporation Finance on March 25, 2020.
This note supplements the wide array of Linklaters’ COVID-19 related resources which can be accessed here. If you have questions relating to your matters or how to mitigate the impact of COVID-19 on your business, either in the Americas or globally, please let us know.