On April 8, 2020, SEC Chair Jay Clayton and Corp Fin Director Bill Hinman put out an unusual and very important Public Statement titled “The Importance of Disclosure.” The Statement focuses on the upcoming round of earnings releases and analyst/investor calls and places great emphasis on the need for forward-looking information. Acknowledging the significant adverse impact of COVID-19 on corporate performance and the challenges to be faced going forward, as well as constraints on resources due to the pandemic, the Statement urges public companies to consider the following:
- Disclosures need to reflect “(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 all our efforts to fight COVID-19 progress.” Most significantly, the Statement points out that “[h]istorical information may be relatively less significant.”
- Providing disclosure about future operations and resource needs is “challenging” but “important on many levels.”
- Companies that “respond to our call for forward-looking information should note that we would not expect good faith attempts to provide appropriately framed forward-looking information to be second guessed by the SEC.”
The Statement discusses the upcoming issuance of Q1 earnings reports and investor/analyst calls, noting that they “will not be routine.” Companies will need to prepare for these releases and calls more carefully than ever, despite resource constraints. Clayton and Hinman “urge our public companies…to provide as much information as is practicable regarding their current operating status and their future operating plans”, and while recognizing that preparing forward-looking information can be challenging, they “encourage companies…to make all reasonable efforts to convey meaningful information…that provides…a level of insight that allows [investors] to see the key operational and financial considerations and challenges the company faces through the eyes of management.”
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