Publicly-Traded Firms and COVID-19-Related Disclosures
INSIGHTi
Publicly-Traded Firms and COVID-19-Related
Disclosures
July 9, 2020
To restore confidence in the securities markets in the wake of the stock market crash of 1929, Congress
passed the Securities Act of 1933 (Securities Act; P.L. 73-22) and the Securities Exchange Act of 1934
(Exchange Act; P.L. 73-291). The Exchange Act created the Securities and Exchange Commission (SEC),
a key regulator of various facets of securities markets. The acts general y require companies that issue
securities to the general public to publicly disclose data deemed material for investors on both the
securities and the issuing firms. Financial disclosures are done quarterly, annual y, and on an ad hoc basis
for certain developments. Firms also can make certain legal y protected, forward-looking predictive
comments. The Coronavirus Disease 2019 (COVID-19) pandemic is material y impacting many public
firms. In response, the SEC has issued multiple staff guidance regarding possible company disclosures
relating to the pandemic’s impact. Americans for Financial Reform (AFR), a coalition of groups including
the AFL-CIO and Public Citizen, has advocated for disclosure requirements, not merely guidelines.
A few related bil s have been introduced in Congress. H.R. 6371 would require public companies to
disclose information related to risks faced by the firms during a global pandemic. H.R. 6375 would
general y require public company disclosure of the risks faced by firms concerning supply-chain
disruptions, as wel as company plans to mitigate those risks.
The SEC’s March 2020 Guidance on COVID-19-Related Disclosures
On March 25, 2020, the SEC staff guidance on disclosure policy for publicly-traded firms noted that
“[t]he impact of COVID-19 on companies is evolving rapidly and its future effects are uncertain.” The
guidance observed that companies were obligated to address business risks related to the pandemic. The
guidance also noted that disclosure on the pandemic’s impact on the following “can be material to
investment and [shareholder] voting”: management’s predictions on the pandemic’s future corporate
ramifications; management’s response to evolving developments; and the nature of management’s
planning for pandemic-related uncertainties.
The guidance also noted that as companies evaluate COVID-19-related effects and think about their
disclosure obligations, they should consider questions with respect to current and future operations,
including the following:
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“How has COVID-19 impacted your financial condition and results of operations?”
“How has COVID-19 impacted your capital and financial resources, including your
overal liquidity position and outlook?”
“How do you expect COVID-19 to affect assets on your balance sheet and your ability to
timely account for those assets?”
“Have COVID-19-related circumstances such as remote work arrangements adversely
affected your ability to maintain operations, including financial reporting systems,
internal control over financial reporting, and disclosure controls and procedures?”
“Have you experienced chal enges in implementing your business continuity plans.... ?”
“Do you expect COVID-19 to material y affect the demand for your products or
services?”
“Do you anticipate a material adverse impact of COVID-19 on your supply chain or the
methods used to distribute your products or services? Do you expect the anticipated
impact of COVID-19 to material y change the relationship between costs and revenues?”
“Wil your operations be material y impacted by any constraints or other impacts on your
human capital resources and productivity?”
The SEC’s June 2020 Guidance on COVID-19-Related Disclosures
On June 23, 2020, the SEC staff released additional public company disclosure guidance with respect to
the impact of COVID-19. The guidance urged firms to consider operational, health, and financial
questions in their disclosures, including the following:
“What are the material operational chal enges that management and the Board of
Directors are monitoring and evaluating? How and to what extent have you altered your
operations, such as implementing health and safety policies for employees, contractors,
and customers, to deal with these chal enges….?”
“How is your overal liquidity position and outlook evolving? To the extent COVID-19 is
adversely impacting your revenues, consider whether such impacts are material to your
sources and uses of funds….?”
“Have COVID-19 related impacts affected your ability to access your traditional funding
sources on the same or reasonably similar terms as were available to you in recent
periods?”
“Have you reduced your capital expenditures and if so, how?”
“Are you able to timely service your debt and other obligations?”
Americans for Financial Reform
SEC Chair Jay Clayton noted that the goal of the disclosure guidance is to assist companies with their
disclosures, noting that the guidance is not intended to be regulatory rulemaking. Guidance provides
recommended actions but lacks the force of law or regulation, giving firms discretion on whether to
observe the guidance. Rules general y take longer to be developed and legal y require corporate
compliance.
AFR is a nonprofit coalition of more than 200 civil rights, consumer, labor, business, investor, faith-
based, and civic and community groups, including the AFL-CIO, the Interfaith Center on Corporate
Responsibility, and Public Citizen. On June 16, 2020, AFR wrote to SEC Chair Clayton asking the agency
to consider providing disclosure requirements for publicly-traded firms that would address the impact of
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COVID-19. AFR noted that the guidance was a good step. In addition, AFR noted that investors were
relying on news reports on the pandemic’s corporate impact, and disclosure requirements were needed “to
require companies to provide consistent, reliable data to investors about the economic impact of the
pandemic….”
The SEC’s Investor Advisory Committee
The SEC’s Investor Advisory Committee (IAC), composed of various investor stakeholders, advises the
SEC on issues from investors’ perspectives. The May 4, 2020, meeting of the IAC was largely devoted to
COVID-19-related corporate disclosures. Some committee members identified other potential areas of
consideration with respect to disclosure guidelines, including
workforce layoffs and turnover;
employee compensation and paid sick leave; and
worker training, with a particular emphasis on worker health and safety preparedness.
In contrast to the AFR’s advocacy for a SEC regime of required COVID-19-related disclosures, several
IAC committee members observed that they were pleased with the agency’s COVID-19-related disclosure
guidance and with the nature of applicable corporate disclosures they had seen.
Author Information
Gary Shorter
Specialist in Financial Economics
Disclaimer
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