On May 3, 2022, the SEC’s Division of Corporation Finance issued a reminder that public companies “may have disclosure obligations” arising from Russia’s invasion of Ukraine. The SEC reminder stated that “companies should provide detailed disclosure, to the extent material or otherwise required,” regarding the following matters:
- exposure to Russia, Belarus, or Ukraine through operations, employees, investments, securities, sanctions or legal or regulatory uncertainty;
- direct or indirect reliance on goods or services sourced in Russia or Ukraine or countries supporting Russia;
- actual or potential disruptions in the company’s supply chain; or
- business relationships, connections to, or assets in the affected countries.
Not surprisingly (at least to anyone familiar with the SEC’s views on disclosure), this list is not exhaustive. For example, the guidance also refers to the need for financial statement disclosure of asset impairments, inventory valuations, changes in customer contracts, and collection of receivables. It also refers to heightened cybersecurity risks and volatility of commodity prices.
When contemplating disclosures relating to Ukraine, it’s a good idea to focus on not only specific line-item disclosure requirements, but also big-picture requirements – particularly the requirement that the Management Discussion and Analysis address “known trends and uncertainties.” This requirement poses significant challenges, given the seemingly constant developments in Ukraine and the uncertainties that they create – for example, the strength of Ukraine’s resistance to the invasion, which could greatly prolong and deepen the conflict; the ongoing imposition of sanctions that continue to damage the Russian economy and make it extremely difficult for companies to do business there; and the mixed reaction of many countries that seem to be tacitly accepting Russia’s invasion by failing to participate in those sanctions.
Please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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