SEC Chairman and Division of Corporation Finance Director Issue Statement Further Addressing COVID-19 Related Disclosures
On April 8, Jay Clayton, the Chairman of the Securities and Exchange Commission (SEC), and William Hinman, the Director of the SEC’s Division of Corporation Finance, issued a public statement addressing disclosure considerations in light of the COVID-19 pandemic. The statement follows other guidance and regulatory relief that the SEC has issued in recent weeks as the pandemic has developed.
The statement is expressed in the form of observations and requests from the Chairman and Director and stresses their view that as the next earnings season approaches, public companies should provide as much information as is practicable regarding their current financial and operating status along with future operational and financial planning. Noting that the COVID-19 pandemic has caused a deep contraction in many areas of the economy and that the strategy to address the national health situation is continuing to evolve, the statement goes on to provide that public companies should consider reflecting this state of affairs and outlook by addressing in disclosures investor interest in:
- where the company stands today, operationally and financially;
- how the company’s COVID-19 response is progressing, including efforts to protect the health of the company’s workforce and customers; and
- how the company’s operations and financial condition may change as a result of efforts to combat COVID-19.
The statement also recognizes that upcoming earnings statements and earnings calls will “not be routine.” According to the Chairman and the Director, historical performance information may be less relevant while investors and analysts may seek information on where companies currently stand, what adjustments they have made in light of COVID-19 and what additional adjustments they expect to make in the future. This could include a detailed discussion of a company’s current liquidity position and expected financial resource needs. Further, the statement notes that a company’s efforts to address worker health and customer safety may be of material interest to investors and, if so, should, in the view of the Chairman and the Director, be disclosed.
The statement further provides that, to the extent public companies are receiving financial assistance to mitigate the effects of the COVID-19 pandemic pursuant to the CARES Act or other governmental programs, and such financial assistance has materially affected, or is reasonably likely to have a material future effect upon, the financial condition or results of operations of a company, the company should disclose the nature, amounts and effects of such assistance.
Observing that the request for public companies to produce forward-looking disclosures may create challenges, in particular given that these statements may involve assumptions outside of the control of public companies, including the length of time for which social distancing will continue, the statement urges public companies to make all reasonable efforts to convey meaningful information and resist the use of generic or boilerplate disclosures. The statement encourages public companies making forward-looking statements about the impact of COVID-19 to avail themselves of existing safe harbors for the use of forward-looking statements, and the Chairman and the Director note their expectation that good faith attempts to provide appropriately framed forward-looking information would not be second guessed by the SEC.
It is important to note that, as expressly indicated in the statement, the statement is not a rule or regulation of the SEC, it does not amend applicable law, it has no legal force or effect, and it does not create any new obligations.
The full text of the statement is available here.