On April 8, 2020, Jay Clayton, Chairman of the Securities and Exchange Commission (Commission), and William Hinman, Director of the Commission’s Division of Corporation Finance, released an unusual public statement addressing the disclosure challenges faced by public companies issuing earnings releases and conducting analyst and investor calls in the coming weeks as they cope with explaining the impact of COVID-19 to investors. In the public statement, which should be read in full, the Chairman and the Director provided a series of observations and requests for company disclosures.
In particular, the statement advises companies to address three matters now of concern to investors:
- 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 everyone’s efforts to fight COVID-19 progress.
Significantly, the releases notes that in the current circumstances, “[h]istorical information may be relatively less significant.”
The statement further encourages public companies to strive to provide, and update and supplement, as much forward-looking information as is practicable, while recognizing the extraordinary challenges they face in a dynamic environment. The Chairman and the Director recognized that companies often are cautioned to limit their forward-looking disclosures, and may be tempted to resort to boilerplate disclosures. However, they encouraged “companies and their advisers to make all reasonable efforts to convey meaningful information—information that provides investors a level of insight that allows them to see the key operational and financial considerations and challenges the company faces through the eyes of management.” They further urged companies to avail themselves of the safe-harbors for forward-looking statements in order to provide these more robust forward-looking statements, stating that “we would not expect to second guess good faith attempts to provide investors and other market participants appropriately framed forward-looking information.”
The statement follows up on the Division of Corporation Finance’s March 25th Guidance for companies to consider with respect to COVID-19, which provided a number of considerations and questions for companies as they prepare disclosures in the near future.
The full statement provides useful, nuanced guidance to public companies preparing for quarterly disclosure and investor calls. Moreover, the statement would be useful reading for boards and senior management in framing their discussions of companies’ ongoing response to the impact of COVID-19 and the eventual recovery.
The full public statement can be found here.
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