For public companies and for market participants generally, the impacts of the coronavirus (COVID-19) pandemic have been unpredictable, swift, and universal.  In a groundbreaking joint statement entitled “The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19,” issued on April 8, Jay Clayton, the Chairman of the U.S. Securities and Exchange Commission (SEC), and William Hinman, Director of the SEC’s Division of Corporation Finance, tackled the question of how public companies should approve their disclosures in the coming weeks when they are issuing earnings releases and conducting analyst and investor calls.

In summary, Chair Clayton and Director Hinton request companies to provide as much information as is practicable regarding their current status and plans for addressing the effects of COVID-19.

Although we encourage all of our subscribers to read the statement in its entirety, below are a few excerpts that we believe capture the crux of the statement:

This quarter, earnings statements and calls will not be routine.  In many cases, historical information may be substantially less relevant.  Investors and analysts are thirsting to know where companies stand today and, importantly, how they have adjusted, and expect to adjust in the future, their operational and financial affairs to most effectively work through the COVID-19 health crisis.

Speaking for ourselves, and recognizing the challenges inherent in our request, we urge our public companies, in their earnings releases and analyst calls, as well as in subsequent communications to the marketplace, to provide as much information as is practicable regarding their current operating status and their future operating plans under various COVID-19-related mitigation conditions.  Detailed discussions of current liquidity positions and expected financial resource needs would be particularly helpful to our investors and markets.  Beyond the income statement and the balance sheet effects, we recognize that COVID-19 may significantly impact operations, including as a result of company efforts to protect worker health and well-being and customer safety.  The impact of company actions and policies in this area may be of material interest to investors, and we encourage disclosures that address that interest.  In addition, companies and financial institutions may be receiving financial assistance under the CARES Act or other similar COVID-19-related federal and state programs.  Such assistance may take various forms and is intended to mitigate COVID-19 effects for companies and their workers.  If these or other types of financial assistance have materially affected, or are reasonably likely to have a material future effect upon, financial condition or results of operations, the affected companies should provide disclosure of the nature, amounts and effects of such assistance.

This request that companies strive to provide, and update and supplement, as much forward-looking information as is practicable is driven by three primary considerations: (1) the information will benefit investors, (2) market digestion of the information will benefit the company, and (3) the broad dissemination and exchange of firm-specific plans for addressing the effects of COVID-19 under various scenarios will substantially contribute to our nation’s collective effort to fight and recover from COVID-19.

We encourage companies that respond to our call for forward-looking disclosure to avail themselves of the safe-harbors for such statements and also note that we would not expect good faith attempts to provide appropriately framed forward-looking information to be second guessed by the SEC.

Key Takeaway for Public Companies

Although we anticipate that most public companies were already planning commentary this earnings season about their current operating status and plans for addressing the effects of COVID-19, we believe this joint statement serves as a loud SEC wake-up call to not treat this reporting season as routine.

As stated in the joint statement, historical information may be substantially less relevant.  Rather, the SEC Chair and Corp Fin Director are requesting companies to convey meaningful 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.

If you have any questions about the joint statement or in general, please feel free to email the authors directly or, if applicable, contact your primary Bass, Berry & Sims relationship attorney.

About the Bass, Berry & Sims Corporate & Securities Practice

Public and private companies of all sizes across a variety of industries turn to Bass, Berry & Sims for counsel on a wide range of corporate matters, including mergers, acquisitions and dispositions; capital markets transactions; executive compensation issues; corporate governance; and shareholder activism.  We serve as primary corporate and securities counsel to more than 35 public companies and have counseled on 150 deals ranging in size from $20 million to more than $15 billion over the past two years.  Click here to learn more about the Corporate & Securities Practice at Bass, Berry & Sims.