Public Company Disclosures in the Time of COVID-19

U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton and Director of Corporation Finance William Hinman issued a substantial statement on April 8, 2020, regarding public company disclosures in the face of the COVID-19 pandemic. The statement comes hard on the heels of a related statement from the SEC's Chief Accountant on April 3 and builds upon long-standing SEC guidance, such as the 1989 Management's Discussion and Analysis (MD&A) release and 2003 MD&A release.

Although the April 8 statement echoes certain of the themes set forth in the earlier releases, it adds nuanced views, guidance and SEC expectations that are far more tailored to the current state of affairs.

Key Points for Public Companies

• Company disclosures should reflect the state of affairs of responses to the pandemic, both in the greater economy and for the company itself, as well as the outlook in light of those measures. Disclosure should, in particular, respond to investor interest in: 1) where the company stands today, operationally and financially, 2) 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 3) how its operations and financial condition may change as efforts to fight COVID-19 progress. Historical information may be relatively less significant.
• Providing detailed information regarding future operating conditions and resource needs is challenging, including because response strategies are in their incipient stages (and are likely to change), but it is important on many levels. Updating and refining these estimates should become less difficult over time.
• The SEC encourages companies that respond to the call for forward-looking disclosure to avail themselves of the safe harbors for such statements and also notes that it would not expect good faith attempts to provide appropriately framed forward-looking information to be second-guessed by the SEC. (It should be noted that this view may not express the attitude of the securities plaintiffs' bar but should be helpful, nonetheless.)
• 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.
• The statement urges 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 mitigation conditions related to COVID-19.
• Accessing government programs for material amounts of financial assistance should be disclosed, including information regarding nature, amounts and the effects thereof.
• Companies and their advisers are urged 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.
• Robust, forward-looking disclosures will benefit investors, companies and, more generally, the overall fight against COVID-19, as well as facilitate communication and coordination among the public and private sectors. The expectations of one company may affect the expectations of others. For example, vendors may be influenced by the disclosures of their customers.
• The SEC is laser-focused on identifying bad actors who would seek to use the current uncertainty to prey on investors. In addition, issuers are reminded "to practice good corporate hygiene," particularly with regard to the protection and distribution of material non-public information.

The statement is the latest in a string of SEC pronouncements and initiatives to assist and guide public companies facing the unprecedented uncertainties of the COVID-19 pandemic, including targeted regulatory relief. A comprehensive list can be found on the SEC's website.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this alert for timely advice.

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