Following the completion of one of the most divisive presidential elections in U.S. history, the election of President Trump and the retention of Republican majorities in both the U.S. Senate and House will impact the public disclosures of many U.S. public companies. The expectation of the securities markets that the results of these elections will significantly impact the prospects of many companies was reflected in the sharp movements in the stock prices in various sectors which occurred shortly after the 2016 elections. While the overall stock market trend since the 2016 elections has been positive, companies in certain sectors such as manufacturing and financial institutions have achieved gains significantly in excess of market norms, with companies in other sectors, such as utility and certain healthcare sectors, having underperformed in relation to market norms (although some healthcare companies have recovered from stock market declines seen in the immediate aftermath of the elections).

With the onset of the annual reporting season for calendar-year end public companies, companies will want to consider how the results of the 2016 elections might impact their securities disclosures, particularly in connection with Annual Reports on Form 10-K which will be filed by calendar-year companies in late February or March. In this regard, public companies are required to disclose risk factors in their Form 10-Ks, as well as to disclose material trends (positive and negative) in the Management Discussion and Analysis section of the Form 10-Ks. Similarly, public companies making securities offerings will need to consider similar risk factor and MD&A-related issues. Public companies in certain market sectors dealt with similar (not fully anticipated) political-related considerations in connection with the U.K. referendum resulting in a majority vote to exit the European Union in June 2016, which resulted in certain companies with multi-national operations updating their risk factors in their 2016 second quarter 10-Qs to disclose the potential negative impact and uncertainties associated with such referendum and a potential future exit of the United Kingdom from the European Union.

Public companies will want to consider what risk factor and MD&A disclosures should be added taking into account anticipated legislative or other action which may result from the 2016 elections, with a particular focus on addressing any potential negative impacts given the protective purpose of risk factor disclosure, with greater specificity if and where possible. For example, healthcare companies will want to address the potential modification or repeal of the Affordable Care Act (ACA) and its potential impact on the company, taking into account the fact that there continue to be significant open questions with respect to the specifics of Republican-supported legislation modifying or replacing the ACA.

A challenge for public companies in considering what updated disclosures may be appropriate is the uncertainty regarding what type of legislative or other action will be taken, particularly taking into account the inherent uncertainty and vagaries of the legislative process, even when one party controls the executive branch and both houses of Congress. Moreover, to varying degrees, many public companies may not have an inside view as to the actual status of legislation being considered. Public companies will want to balance the goal of providing an appropriate level of disclosure regarding the potential impact of the 2016 elections while being mindful of this uncertainty.

There are also potential impacts that may be generally applicable to most U.S. public companies. For example, in the December 5, 2016, blog post, Jay Knight discusses the potential  that a significant reduction in the U.S. corporate income tax rate from its current rate of 35% might result in future significant charges to earnings for many public companies as the result of the remeasuring of deferred tax assets which would result from this corporate income tax reduction.

Public companies will also want to be mindful of the interplay between the disclosures in their earnings releases and periodic reports with statements made on earnings calls and other Regulation FD-compliant forums. Earnings calls may allow for a more conversational and expansive discussion of the potential positive as well as negative impacts of the 2016 elections than may be deemed advisable to include in the MD&A in a periodic report, both with respect to statements made in the prepared portion of the earnings call and in response to Q&A (and these potential impacts will continue to be a key area of analyst focus and questions for many public companies). Companies should be mindful, however, of the nature of public disclosure made in earnings calls and the extent to which such disclosure should be addressed or considered in preparing disclosure in periodic reports, taking into account that the Staff will monitor disclosures made by public companies in earnings calls and similar forums and the consistency of such earnings call disclosures with disclosures made in periodic reports.

For an additional overview about the potential impact of the election of President Trump on risk factor disclosures, I suggest the article by Tom Zanki on Law360,  “Expect More Companies to Disclose Trump in Risk Factors” (January 12, 2017).